International Political Economy Midterm

David Ricardo

(1772-1823)-English economist who formulated the "iron law of wages," and suggested the theory of "absolute advantage," which says there is mutual national benefit from trade even if one country is more competitive in every area than its trading counterpart and that a nation should concentrate resources only in industries where it has a comparative advantage, that is in those industries in which it has the greatest competitive edge.

The glass-steagall act

(Banking Act of 1933) - Established the Federal Deposit Insurance Corporation and included banking reforms, some designed to control speculation. Repealed in 1999, opening the door to scandals involving banks and stock investment companies.

What factors that contribute to the revival of neomercantalism as an IPE perspective?

1) The decline of the Cold war and the increasing disarray in the global economy induced many realists to devote more attention to economic issues. 2) A number of developments demonstrated the need for neomercantilist studies focusing on the economic role fo the state.

Reciprocal Trade Agreement Act (RTAA)

1934 Act which sought to reverse the damage of the Smoot-Hawley tariff. It delegated tariff setting authority to the president, who could resist special interests and negotiate tariff reductions more effectively than congress.

Historic Bloc

A Gramscian term referring to the congruence between state power, ideas, and institutions that guide the society and economy.

General Agreement on Tariffs and Trade

A UN brokered legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. 1947-1994

Epistemic community

A community of experts and technical specialists who share a set of beliefs and a way to approach problems

Pareto-deficient outcome

A condition in which all actors would prefer another outcome

Pareto-optimal outcome

A condition in which no actor can be made better off without making someone else worse off

World Economic Forum

A forum held in Switzerland every year that brings together wealthy individuals, corporate leaders, industry leaders, and heads of government to coordinate economic policies and initiatives

Neoconservatives

A group that championed free-market capitalism liberated from government restraints, anti-soviet positions in foreign policy, questioned liberal welfare programs, and called for the reassertion of traditional values of individualism and the centrality of the family

New International Economic Order

A list of demands by the Group of 77 to reform economic relations between the North and the South, that is, between the developed countries and the developing countries

financial crisis

A major disruption in financial markets that is characterized by sharp declines in asset prices and the failures of many financial and non financial firms

Gini Coefficient

A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income.

Dependency Theory

A model of economic and social development that explains global inequality in terms of the historical exploitation of poor nations by rich ones

Instrumental Marxism

A perspective that holds that a state's policies reflect the interests of the capitalist class. They point to personal ties between capitalists and public officials, and to the movement of individuals between business and government.

Structural Marxism

A perspective that holds that the state is relatively autonomous from direct political pressure of the capitalist class. Although, some capitalists oppose state policies benefiting workers, they do not realize that these policies serve their long-term interests. By providing welfare and other benefits, the state placates the worker sand gains their support for capitalism.

Rational Choice Theory/Public Choice Theory

A popular theory in political science to explain the actions of voters as well as politicians. It assumes that individuals that have goals and some freedom of choice will take actions that they believe will help achieve their goals.

World Empire

A single political entity (such as ancient Rome) often uses coercive power to control the economic division of labor between the core and the periphery .

Collective action problem

A situation in which the members of a group would benefit by working together to produce some outcome, but each individual is better off refusing to cooperate and reaping benefits from those who do the work.

World Bank

A specialized agency of the United Nations that makes loans to countries for economic development, trade promotion, and debt consolidation. Its formal name is the International Bank for Reconstruction and Development.

Constructivism

A theory developed in the 1980s by Nicholas Onuf which does not assume that an actors preferences reflect rational choice; it examines beliefs, traditions, roles, ideologies, and patterns of influence that shape preferences, behavior, or outcomes.

Non-Gramscian analysis

A theory that suggests we should view hegemony . in class terms, because a dominant class that rules y coercion is not hegemonic because its power does not extend through society and it can be overthrown by physical force. To attain hegemony, the dominant class must gain the active consent of the subordinate classes based on shared values, ideas, and material interests.

NAFTA

A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American countries.

Debt crisis

A type of financial crisis that occurs when some major debtor state lacks foreign exchange to pay the interest and/or principle on their debt obligations. Indebted countries may require debt restructuring agreements that alter the terms between the creditor and debtor. These agreements take two forms: debt rescheduling agreements, and debt reduction agreements.

Modernization theory

A version of market-oriented development theory that argues that low-income societies develop economically only if they give up their traditional ways and adopt modern economic institutions, technologies, and cultural values that emphasize savings and productive investment.

Bretton Woods System

After WW2 marked a breakdown of monetary cooperation and a period of exchange controls, a conference was held to establish a gold standard in which the value of each country's currency was pegged to gold or the US dollar. This system was based in an embedded liberal compromise. The postwar planners assumed that the pegged exchange rates would provide the stability needed for international trade, but they also provided for some flexibility and assistance so countries could adopt domestic policies to combat inflation and unemployment. This was different than previous gold standard systems, because they ad prioritized exchange rate stability over domestic requirements. All countries other than the US were allowed to devalue their currencies under IMF guidance to correct balance of payment problems.

Cobden-Chevalier Treaty

An 1860 treaty which lowered tariffs between Britain and France.

International organizations

An alliance of two or more countries seeking cooperation with each other without giving up either's autonomy or self-determination.

Centrally Planned Economy

An economic system in which the central government makes all decisions on the production and consumption of goods and services. Examples of this include Eastern Europe, the Soviet Union, and China.

Mercantilism

An economic theory and practice common in Europe from the 16th to the 18th century that promoted governmental regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers. Countries hoarded gold and silver, and tried to increase exports and decrease imports of manufactured goods. Colonialism was a key to this practice as it provided raw materials and markets for manufacturers. This period ended around 1750 due to the industrial revolution.

Endogenous Growth Theory

An economic theory which argues that economic growth is generated from within a system as a direct result of internal processes. More specifically, the theory notes that the enhancement of a nation's human capital will lead to economic growth by means of the development of new forms of technology and efficient and effective means of production.

WTO

An international body that enforces agreements that reduce barriers to international trade; successor to the GATT

International Bank for Reconstruction and Development.

An international financial institution established in 1944 that offers loans to middle-income developing countries.

IMF

An international organization headquartered in Washington, D.C., consisting of 189 countries. It was designed to stabilize exchange rates and provide member states with short term loans for temporary balance of payment problems. Members had to peg their currencies to gold or the US dollar, and contribute to a pool of national currencies available for IMF loans to deficit countries. More economically powerful states get more votes, unlike in the UN, and the G5 have the most power. In exchange for loans, countries must agree to adopt specific economic policies. It was formed in 1944 at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes.

International Monetary Fund

An international organization of 183 countries, established in 1947 with the goal of promoting cooperation and exchange between nations, and to aid the growth of international trade. Most of its funding comes from the G5, and the UN has very little power over it.

Moral hazard

Arises when people behave recklessly because they know they will be saved if things go wrong (by the IMF or World Bank)

World Economic Forum

Based in Cologny-Geneva, Switzerland, it was founded in 1971 as a not-for-profit organization. It was granted "other international body" status in January 2015 by the Swiss Federal Government under the Swiss Host-State Act (this is not International organization status, which requires a treaty between governments). The WEF's mission is cited as "committed to improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas."

Floating Exchange Rate

By 1973, the major nations were all ignoring the Bretton Woods ban on freely floating exchange rates. In 1976 ,the IMF legalized this situation and permitted each country to either establish a par value for its currency or shift to floating exchange rates. In free-floating regimes, countries do not intervene in currency markets, and the market alone determines the currency value. IMF members often rely instead on managed floating, in which central banks intervene to deal with disruptive conditions such as excessive fluctuations in exchange rates. This shift created a crisis of purpose for the IMF.

Sustainable Development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Embedded Liberalism

Dominant economic approach during the Bretton Woods system, which combined open international markets with domestic state intervention to attain such goals as full employment and social welfare. It brought about disarray in the 1970s, when the gold standard failed, and exchange rates floated.

Smoot-Hawley Act

Enacted in 1930 by the U.S. Congress, this act erected the highest tariffs in 20th century history, as barriers against imports into the United States.

Keystone International Economic Organizations (KIEOs)

Examples include the IMF, World Bank, GATT, etc. Mission is to foster global growth and economic stability; provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty 9

Public goods

Goods that are neither excludable nor rival in consumption. Examples of public goods include law enforcement, national defense, sewer systems, and public parks.

MDRI

In June 2005, the Group of 8 (G8) major industrial countries proposed that three multilateral institutions—the IMF, the International Development Association (IDA) of the World Bank, and the African Development Fund (AfDF)—cancel 100 percent of their debt claims on countries that had reached, or would eventually reach, the completion point

1980s Foreign Debt Crisis

In the 1980s, the world experienced a debt crisis in which highly indebted Latin America and other developing regions were unable to repay the debt, asking for help. The problem exploded in August 1982 as Mexico declared inability to service its international debt, and the similar problem quickly spread to the rest of the world. To counter this, macroeconomic tightening and "structural adjustment" (liberalization and privatization) were administered, often through the conditionality of the IMF and the World Bank.

Human Development Index (HDI)

Indicator of level of development for each country, constructed by United Nations, combining income, literacy, education, and life expectancy

Materialist

International constraints on states and other actors stem from material factors such as armaments, money, and natural resources.

Realism

It theoretically formalizes the Realpolitik statesmanship of early modern Europe. Although a highly diverse body of thought, it is unified by the belief that world politics is always and necessarily a field of conflict among actors pursuing power.

Corn Laws

Laws repealed in 1846 in England that restricted agricultural imports.

Institutional liberals

Liberals who favor strong international institutions as a necessary supplement to the market, and they favor strong international institutions such as the WTO, IMF, and World Bank. They also believe that the environmental crisis can be solved using market-based solutions, but they also call for strong global institutions to coordinate efforts to deal with environmental degradation, pollution, and resource scarcity.

Keynesian economics

Macroeconomic theories about how in the short run - and especially during recessions - economic output is strongly influenced by aggregate demand (total spending in the economy). These economists generally advocate a managed market economy - predominantly private sector, but with an active role for government intervention during recessions and depressions.[6]It served as the standard economic model in the developed nations during the later part of the Great Depression, World War II, and the post-war economic expansion (1945-1973), though it lost some influence following the oil shock and resulting stagflation of the 1970s. The advent of the financial crisis of 2007-08 caused a resurgence of this.

Neomercantilists

Modern supporters of mercantilism, who hold that a country should erect barriers to trade to protect its industries from foreign competition; also called protectionists. They view the modern international system as archaic, because there is no central authority above the state. Conflict and war are ever-present dangers, and each state must look after its own national interest. This school of thought sees the state has being the principle actor, and they emphasize the need to preserve national sovereignty. Alexander Hamilton believed in this. It is opposed by feminists (bc it encourages people to rely on the state) and environmentalists.

Classical Gold Standard (1870-1914)

Monetary system based on orthodox liberalism where countries tied their currency to gold at a legally fixed price. This system functioned reasonably well because it was backed by British hegemony and cooperation between major powers. The British helped stabilize the gold standard by providing other states with public goods such as investment capital, loans, and an open market for their exports.

MNC

Multinational Corporation, A firm having operations in more than one country.

Bank for International Settlements

One of the oldest international financial organizations, created in 1930, its members include the world's principal central banks, and under its auspices they attempt to cooperate in the financial realm.

Liberal

One who supports greater government involvement in the market to prevent inequalities and stimulate growth. They think that globalization and international trade is good, and that there is a positive sum game. They also think international organizations such as the WTO, World Bank, and IMF are neutral and promote cooperation. They also see politics and economics as separate.

OPEC

Organization of Petroleum Exporting Countries

Interwar Period (1918-1944)

Period after WW1 disrupted the international monetary system. After the war, exchange rates floated freely and centra bans did not intervene in the foreign exchange market. Floating exchange rates contributed to volatility in the value of currencies and there were efforts to restore the gold standard. By 1927, the major states established the gold exchange standard regime in which central banks held their reserve in major currencies as well as gold, and each central bank fixed the exchange rate of its currency to a key currency with a fixed price in gold (like the British pound). Under this systems, currency reserves were not limited by gold reserves, and there was more flexibility. However, this did not really work because some states had balance of payments deficits and others had surpluses. In 1931 the British stopped tying their currency to gold and states returned to floating their currencies, however this was a more managed float in which banks intervened to deal with excessive fluctations in exchange rates.

BRIC countries

Refers to Brazil, Russia, India, and China, the largest and fastest growing of the developing countries with over 40 percent of the world's population.

Adam Smith

Scottish economist who wrote the Wealth of Nations a precursor to modern Capitalism. He thought government intervention was necessary for 3 things - to protect from violence or invasion, to promote the administration of justice, and to erect public works and institutions that individuals would not establish on their own.

Balance of payments deficit

Shortfall that occurs when more money flows out of a nation than into that nation. This can force up the value of a countries currency, making its exports more expensive for foreigners, and too much of a deficit can lead to inflationary pressures and rising domestic prices. In response, companies either finance the deficit or adjust to it. Adjustment measures can include tariffs, import quotas, export subsidies, currency devaluation, deflationary policies, higher taxes, and lower interest rates. Financing means that the country will borrow rom an external source or decrease its foreign exchange reserves.

Competition States

States that try to grow their economies by restructuring industry, deregulating financial markets, and supporting research and development in high-technology sectors.

Newly Industrializing Countries

States that underwent industrialization after World War II and whose economies have grown at a rapid pace.

The Great Moderation

The 25 year period from the mid 1980s to about 2006 when business cycle downturn seemed less of a threat, and financial innovations and reregulation encouraged investors to overextend themselves, and US mortgage lenders provided prime mortgages to people with low incomes or poor credit ratings."

Collapse of Bretton Woods

The Bretton Woods system itself collapsed in 1971, when President Richard Nixon severed the link between the dollar and gold — a decision made to prevent a run on Fort Knox, which contained only a third of the gold bullion necessary to cover the amount of dollars in foreign hands. Additionally, the US balance-of-payments deficits created a crisis of confidence for the dollar, and countries were reluctant to hold large supplies of the dollar, since the dollar could not be adjusted through devaluation.

Council for Mutual Economic Assistance

The Soviet Union's response to the Marshall Plan, whereby the Soviet Union offered economic aid packages for Eastern European countries. It emphasized centralized economic planning, nationalization o the factors of production, the collectivization of agriculture, and the insulation of the domestic economy from external influences. It performed poorly bc it contributed to bilateralism, inward looking policies, and a currencey (the ruble) with unrealistic conversion rates that limited trade.

Comparative Advantage

The ability of a country to produce a good at a lower cost than another country can. This means that two countries can benefit from trade, because each country only focuses at what they can produce best.

Fordney-McCumber Act

The act that, in 1922, raised tariffs dramatically in an effort to protect American industry.

Two level game theory

The concept that in order to arrive at satisfactory international agreements, a country's diplomats actually have to deal with (at one level) the other country's negotiators and (at the second level) legislators, interest groups, and other domestic forces at home.

Market Failure

The failure of a market to produce an optimal allocation of resources; for example, the market may produce private benefits that have huge social costs.

Bank of International Settlements (BIS)

The first financial IO, established in Basle Switzerland in 1930, which oversaw the settlement of German reparations after WW1, although its main purpose waws to promote cooperation among central banks.

Triffin Dilemma

The global economy needs the US to run deficits so our bonds act as reserve currency. However, the Fed has been printing new money to help pay off these loans, and soon all this will turn inflationary threatening all countries using the dollar as reserve currency. "The country whose currency, being the global reserve currency, must be willing to supply the world with an extra supply of its currency leading to a trade deficit."

Terms of Trade

The ratio at which a country can trade its exports for imports from other countries

Global Governance

The regulation and coordination of transnational issue areas by nation-states, international and regional organizations, and private agencies through the establishment of international regimes. These regimes may focus on problem solving or the simple enforcement of rules and regulations.

GNP

The sum of all goods and services produced by a nations people in a year. It includes income earned by citizens abroad, and subtracts income earned by domestic foreigners.

Debt Trap

The syndrome of having constantly to borrow in order to fund "development". They have to accept conditions which doom their efforts at industrial, diversified economies. If they accept suppliers credits on commercial terms in order to go through with their cherished projects, they are caught anyway when the payments come due before they are able to meet them.

Hegemonic Stability Theory

The theory that the international economic system is more likely to remain stable when there is a single dominant nation-state that is willing and able to provide leadership.

GDP

The total market value of all final goods and services produced annually in an economy

Financial contagion

The transmission of a financial shock from one market or country to other interdependent markets or countries. One occurred in Asia after the economy of Thailand struggled in 1997 because of massive debt accumulation, low property costs, and capital inflows increasing. These spread from a single company or bank to others through panic.

World systems theory

Theory developed by Immanuel Wallerstein that explains that the world has a single division of labor and multiple cultural systems.

World Economies

These have no unified political system, dominance is not based on military power alone; similar to the world-empire that it is based on the extraction of surplus from outlying districts to those who rule at the center. The current world is a World Economy since no single state has conquered the core region.

Interventionist liberals

They believe that negative freedom is not sufficient, and they support some government intervention to promote more equality and justice in a free market economy. They believe that LCDs need to adopt efficient and market oriented policies in order to develop, however they also think that when market systems are left to themselves that it promotes inequality. They recommend that the North and International organizations assist LCDs. They also prefer market based solutions to environmental problems, but they also favor some government involved to address the market's inadequacies and ensure that business firms follow environmentally friendly policies.

Moderate Globalist

They believe that states are viable, however they differentiate international relations among states from global relations taking place without regard to territorial boundaries (for instance, the internet).

Orthodox liberalism

They promote "negative freedom," aka the freedom of the market to function with minimal interference from the state. They assume that development problems in LDC are a result of poor domestic policies. They think that LDCs must adopt western norms and practices in order to succeed. They also believe that economic growth is the main factor behind better environmental policies. Even if some business activities adversely affect air and water quality in the short term, they contribute to economic growth which will improve environmental conditions over time.

Declinist

They see hegemony as inherently unstable and impermanent.

Internationalist

They understand that interdependence is increasing and that nonstate actors have a role in IPE, but they believe that the world is no more "global" than it was in the 19th century. They think that the global economy is still characterized by exchange between relatively distinct and national economies.

Hyperglobalists

They want to create a "borderless world" in which MNCs lose their national identities, and regional and global markets replace national economies.

Transnational Advocacy Network (TAN)

This includes those relevant actors working intertnatinoally on an issue, who are bound together by shared values, a common discourse, and a dense exchange of information and services.

Stagflation

This occurs when an economy has inflation, stagnant economic growth, and relatively high unemployment.

Liberal feminism

This theory explores the types of women's subordination, such as income inequality, the lack of women in positions of influence, and the pligt of refugee and immigrant women. They accept the liberal institutions under capitalism and propose that more inclusion of women in positions of power is the best way to address gender inequality.

Critical feminism

This theory holds that inequality and exclusion are inherent characteristics of liberal institutions, because capitalism differentiates "production" from "reproduction." A major part of women's work is reproduction of the male work force, which does no count as a productive activity in the economic sense. Thus, these view the replacement of liberal institutions with more egalitarian models as the only way to move beyond the patriarchy.

HIPC

This was an initiative to eliminate the debt held by multilateral institutions for the poorest countries. The heavily indebted poor countries (HIPC) are a group of 37 developing countries with high levels of poverty and debt overhang which are eligible for special assistance from the International Monetary Fund (IMF) and the World Bank

Absolute gains

This will engage in comparative advantage and expand the overall economy

Least Developed Countries

Those countries including countries in Africa, except for South Africa, and parts of South America and Asia, that usually have low levels of economic productivity, low per capita incomes, and generally low standards of living

Common property goods

goods that are non-excludable and rival in consumption