The Politics of International Economic Relations Session 2 31 October 2006

1. The Politics of International Economic RelationsSession 231 October 2006

2. Overview • Gilpin’s three perspectives • General theoretical orientations and specific research programs • IPE as an multidisciplinary field • Economics • Comparative Politics-Domestic Politics • IR • IR: key developments • The dominance of realist theories • Liberal challenges and emergence of IPE • Regime literature and HST • Neo-Neo Debate • Rationalism vs. Constructivism

3. Gilpin’s three perspectives • 1987 Book: Liberalism/ Marxism/ Nationalism • Cold War Context / A realist tale • US and major allies subordinated potential economic conflicts to the need to maintain political and security cooperation • Emphasis on security interests and alliance cohesion provided the political glue that held the world economy together... • Despite the growing importance of the market, historical experience indicated that the purpose of economic activities is ultimately determined not only by markets (...), but also (...) by norms, values, interests of the social and political systems in which economic activities are embedded

4. Gilpin’s three perspectives • Intellectual perspectives / three ideologies • regarding the nature and functioning of the world economy • Marxism • Liberalism • Nationalism (Economic Nationalism)/Realism

5. Marxism • The relevance of Marxism declined (end of communism and end of import-substitution of many developing countries), Marxism in the sense „how to run an economy“ • For Marxist communist experience in Soviet Union and East Europe was an embarrassment • Marx’s social theory still analytically strong (dynamism and contradictions of capitalism, analysis of crisis) • Power and wealthy continue to prosper at the expense of powerless and poor (world poverty)

6. Marxism • Central elements of historical materialism • Economic development is the motor of society • Legal, political and cultural institutions reflect and reinforce the pattern of power and control in the economy • Change in economic base leads to change in the legal and political superstructure • Class struggle, bourgeoisie and proletariat

7. Marxism • World-System Theory • Wallerstein’s world-system theory: Core, semi-periphery, periphery based on • Lenin’s work on imperialism • and the Latin American Dependency School

8. Marxism • Gramscianism • Antonio Gramsci • why was revolution in the West so difficult • it’s hegemony that allows the moral, political and cultural values of the dominant group to become widely dispersed in the society and to be accepted (common sense) Robert Cox • Theories (e.g. neo-realism) serve the interests of those who prosper and in particular the ruling elite • Problem-solving vs. critical theory, see dominance of neo-liberalism

9. Marxism • Critical Theory • Frankfurt School (Horkheimer, Adorno, Habermas): not so relevant for IPE, yet for IOs • Role of the media, culture industry, emancipation • Habermas: promise of communication (radical democracy) • New Marxism

10. Liberalism UK and US in 18 and 19th century: dominating paradigm Elements • Individual most important unit • Rationality and interest maximization • Market Efficiency • Small Government • Self-restraint • Explicit normative thinking (Values of Order, Liberty, Justice, Toleration, Self-determination) • States must be part of an IO and be bound by its rules and norms

11. Liberalism Types of Liberalism • Commercial liberalism • Democratic liberalism • Regulatory liberalism • Immanuel Kant / Democratic Peace Thesis • Woodrow Wilson: collective security system • David Mitrany (pioneer of integration theories), collaboration in one sector-spill over to another, cost of withdrawing increases with integration • Transnationalism • Interdependence • Pluralism • International Regimes • Francis Fukuyama: End of History

12. Gilpin’s three perspectives • Perspectives are composed of analytic and normative elements • Liberalism (neo-classical economics, normative commitment) • Marxism (difference of analytical tool or critique of capitalism and economic policy recipes) • Economic Nationalism (anarchic nature of IR, primacy of state and interests)

13. Gilpin’s three perspectives • Gilpin (analytically economic nationalism, normative view liberalism) • For Gilpin these perspectives are not theories: • Perspectives lead to theories (e.g. hegemonic stability theory, democratic peace) which feature hypotheses (predictions) which can be proved or disproved by empirical research (Popperian criterion of falsification)

14. Theories vs. Research Programs (Katzenstein et al.) • Theory has been thought in a variety of ways • Two meanings: general theoretical orientations, specific research programs • Theoretical orientations as heuristic devices /they suggest relevant variables and causal patterns (guidelines for developing research programs) • Marxism, liberalism, statism, pluralism, historical institutionalism, rational choice institutionalism, constructivism • Specific research programs link explanatory variables to a set of outcomes (dependent variables), these can be tested with evidence (but as it is a non-experimental science in general, thus contestation)

15. IPE as an multidisciplinary field/Economics • Methodological individualism / rational actor model of human behavior • Law of diminishing returns / scarcity • Public-Choice, Neo-classical institutionalism, political-economy (is often equated with rent-seeking, literature on trade protection) • History of Economic Theories • Theory of comparative advantage • Neo-classical economics

16. Free Trade vs. Protectionism • Ideas matter! • Free trade vs. protectionism • Paul Bairoch 1993, Economics and World History: Myths and Paradoxes • Free trade (exception), protectionism (the rule) • Waves of tree trade • 1846 (Abolishment of Corn Laws) until 1870s • GATT Regime 50s und 60s • 1970 Stagflation/New Protectionism • 1995 WTO (Uruguay-Round)

17. Free Trade vs. Protectionism Mercantilists/Protectionists: • Trade as zero-sum game • Alexander Hamilton (1755-1804) infant industry argument • Friedrich List (1789-1846) Laisser-Faire/Free Traders: • Trade as positive-sum game • David Hume (1711-1776) Price-specie flow mechanisms • Adam Smith (1723-1790) “The Wealth of Nations” 1776, absolute advantage • David Ricardo (1772-1823), relative advantage

18. H-O Model Eli Heckscher and Bertil Ohlin (H-O Model) - 1930 Assumptions: • Constant economies of scale • Production technology free available • Factor proportion as comparative advantage Predictions: • A country exports products where factors are abundant, e.g. capital-rich countries will export capital-intensive products • Trade benefits sectors which are export-oriented and weakens import-competing sectors • (In the long run, factor prices (salaries for work, capital gains) will align)

19. Empirical Evidence and adjustments Empirical evidence? • a) Wassily Leontief „Leontief Paradox“ 1954 • H-O model adjusted • Human Capital, technological innovation, and increasing economies of scale • b) H-O model can not predict large amount of intraindustry trade (predicts interindustry trade) • c) End of 90s: 50% US and Japanese Trade intra-firm!

20. Business Insights (Theories) • From comparative to competitive advantage (insights from business) Michael Porter: • National Culture • Demand/Taste • Industrial Structures (Oligopoly) • Spill-overs (Clusters) • National Regulations/Institutions

21. New Trade Theories • New growth theories/ endogenous growth theories Paul Romer 1986 und Robert Lucas 1988 • New Economic Geography Paul Krugman Geography and Trade 1991 • Strategic Trade Policy

22. Relevance for IPE • Based on Trade Theory/Rent-seeking • Exchange of goods influence interests • Stolper-Samuelson: expansion of world trade strengthens owners of abundant factors • Ricardo-Viner (Specificity of production factors) • Ronald Rogowski (Effects on lobbying)

23. IPE as an multidisciplinary field/Comparative Politics • Comparative Politics • Pluralism, historical Institutionalism, rational choice Institutionalism, sociological Institutionalism, etc. • 90s boundaries between comparative politics and IR got blurred

24. IPE as an multidisciplinary field/Domestic Approaches • Marxism • Pluralism • Institutionalism • Statism (e.g. bureaucratic politics)

25. Pluralism • Competition among interest groups • Access to decisions (agenda-setting) • Collective action problems

26. Institutionalism Interest-Group Organization E.g. Organization of labour unions (central- decentred) • Tendency of workers in Japan to be organized along firm lines, in North America along industrial lines, and in much of European along class-wide lines. Access of interest groups E.g. Party financing, business advisory Committees

27. Political Institutions • Interest are channeled through institutions, interest aggregation Electoral Institutions (proportional vs. majoritarian, referenda) Legislative Institutions (Multi-party vs. single party governments) Bureaucratic institutions (Agent-Principal theories on delegation) • Electoral institutions affect the relationship among voters, interest groups and politicians • Legislative institutions influence the ways in which politicians bargain toward policy outcomes • Bureaucratic institutions shape the ways in which policy is made and implemented, depending on the degree of autonomy delegated to bureaucrats

28. Statism • Statism (e.g. bureaucratic politics) • Autonomy of state institutions • State as actor (e.g. capture interest groups) • Interinstitutional settings

29. IPE as an multidisciplinary field/IR • International Relations Theories: • Realism / Neo-Realism • Liberalism / Neoliberal Institutionalism • Constructivism

30. IR: key developments IPE reaction to: • 70s economic and political events • Dominance of realism

31. Dominance of Realism • Idealism (Woodrow Wilson: League of Nations): Utopism • Realism-Key assumptions: • The State as central actor (Statism) • Survival – first priority for state leaders • Self-help in an anarchic world

32. Elements of Realist Theories • Nation-states as key actors (Westphalian System since 1648) • States as unitary actors • Internal Sovereignty (legitimate use of force, territory, people, taxes, military) • External Sovereignty (no intrusion through superior authority)

33. Elements of Realist Theories • Life in an anarchic system without superior authority • Self-help system - Survival • Actors follow rational behavior (national interest) • zero-sum game / relative gains

34. Elements of Realist Theories • World Politics is struggle for power • The role of power is important to push interests through • Power in a Resource Perspective/Capacities (e.g. military power) • Max Weber’s power definition: Power' (Macht) is the probability that one actor within a social relationship will be in a position to carry out his own will despite resistance, regardless of the basis on which this probability rests. • Robert Dahl (A has power over B to the extent that he can get B to do something that B wouldn’t otherwise do). • Security dilemma • Balance of power: States act preventively to counter dominant states (e.g. alliance in the 19 century), natural equilibrium/ equilibrium via diplomacy

35. Different Realisms • Historical Realism: Machiavelli (Prince); E.H. Carr, (Twenty Years’ Crisis): Policy Prescriptions for state leaders (Power and Morality, Coercion and Appeasement) • Classical Realism (human nature): Hans Morgenthau (Politics Among Nations): humans are selfish, competition-oriented • Neo-realism or Structural Realism (Waltz, Mearsheimer), Structure determines actions (in the context of the Cold War)

36. Liberal Challenges and Emergence of IPE • Liberal Institutionalism: Creation of institutions after WW2 (UN, Bretton Woods) • Liberal Realism/English School of IR (Hedley Bull): there is, despite the condition of 'anarchy' a 'society of states' • Democratic Peace (Kant - Perpetual Peace: A Philosophical Sketch ) • Functionalism / David Mitrany: The State in Modernity needs to cooperate to tackle externalities, exit costs increase with integration • Neofunctionalism (Ernst Haas) • Other sources of influence: transnationalism, pluralism, imperialism/marxism

37. IR: key developments /1970s • Transnationalism difficult to operationalize • Marxism marginalized • Neofunctionalism in crisis The rise of HST • HST encountered logical and empirical anomalies The rise of regime theories • 70s Interdependence (Keohane and Nye) • 1977 „Power and Interdependence“

38. IR: key developments /1980s • Neo-Neo Debate • The rise of game-theory and rational choice approaches • Behavior of states in conflict and cooperative situations • Neo-realists (security issues, power, survival), neoliberals (political economy, cooperation, institutions) • Late 80s constructivism (shared norms and values) – rationalism (including realism and liberalism)

39. Rationalism vs. Constructivism Constructivism • Influential: • John Ruggie’s work (ideas and norms in international relations) • Alexander Wendt (agent-structure problem), international normative structure shaped identities and interests of states, practices and interactions re-create the structure • Friedrich Kratochwil (regulative rules vs. constitutive rules) • Epistemic Community Literature

40. Constructivism: Key components • Ideas, beliefs, roles, traditions • ideologies shape behavior and outcomes • Social construction of reality • The way actors understand their own interests depends on dominating beliefs and patterns of thinking in the world-economy, many of which are embodied in institutions • Policies within the world-economy are affected by historical and sociological factors • Logic of consequences and the logic of appropriateness

41. Constructivism: Norms and Mechanisms • Life Cycle of Norms (Finnemore and Sikkink) • Norm emergence (norm entrepreneurs, framing, embodied in institutions, threshold) • Norm cascade (dynamic of imitations, socialization processes (e.g. conformity, legitimation, self-esteem) • Norm internalization (taken-for-granted quality) • Different levels of socialization through interaction with an IO (Jeffrey Checkel) • From strategic calculation (instrumental rationality) • cognitive role playing (bounded rationality) • normative suasion (communicative rationality - preference or identity shift)

42. Outlook • Hegemonic Stability Theory • The Emergence of Regime Theories