International Political Economy: Globalization, Trade and Power

Chapter 9.1: Introduction to International Political Economy

Expanding membership—cultural criteria and institutional workability

• What makes a country “European”?
• Wealth gap: Luxembourg $102,000 vs. Moldova $1,900
• Comparison: Massachusetts $65,000 vs. Mississippi $31,800

The study of the interactions between states and markets in an increasingly globalized world.

What is Globalization?

The process of increasing integration of the world in terms of economics, politics, communications, social relations, and culture.

Increasingly seen as undermining traditional state sovereignty.

Mercantilism

• 15^th–18^th Century: European states dedicated to pursuit of economic wealth
• Encourage exports over imports
• Industrialization over agriculture
• Protect domestic production
• Strong central government needed for efficient tax collection and maximization of exports
• Support high tariffs and discourage foreign investment to achieve national self-sufficiency
• Statism is the modern version — subordination of economic activities to the goal of maximizing state power

Radicalism

Based on Marxist and neo-Marxist writings:

• Blames the capitalist system developed under liberalism for harsh living conditions of the working class
• The state supports owners of the means of production
• Owners expand markets and accumulate resources at the expense of the working class and the developing world
• Constantly expanding markets will lead to crisis
• Process is exacerbated by speculators
• Environmental disaster could hasten change
• Suggests major change in power relations

Conditions of Perfect Competition

1. Perfect knowledge: all information is available to all participants without time lags.
2. No barriers to entry or exit out of the market.
3. Firms produce homogeneous, identical units of output that are not branded (inputs as well).
4. Every participating firm is a price taker.
5. No externalities.
6. Perfect factor mobility.

Externalities: a cost or benefit which results from an economic transaction that affects an otherwise uninvolved party who did not choose to incur that cost or benefit.

Ex: Pollution, herd immunity and Systemic Risk