THEORIES IN IPE (Obrien, chapter 1,2)

DEFINITION

IPE it is a subfield of IR that study the links between politics and the economy.

IPE studies the interactions between the economy and political activities. Ngaire Woods
on the international scene.

Politics and the economy influence each other in important waysRobert ilpin

Who are the actors of the IPE?

 States (important in the regulations of the economy)

 Economic Organizations (WTO, IMF, WB, etc…)
 Firms, Multinational
 Individuals (consumers, workers, investors, migrants, academics, consultants,
experts)

What’s the object of study?

 Foreign economic policy

 International economic governance
 Economic regulation/cooperation
 Trade
 FID
 Natural resources
 Development
 Finance: crisis, debt, monetary policy
 Labour, production, firms
 Globalization

The Greek crisis:

An economic crisis that spill over and turn into a political crisis
How to deal with the crisis? Austerity (severity/strictness) or not?
The impact of the crisis on the regional integration, weakening of the EU
The impact of the crisis and of the Alexis Tsipras election on the outcome of elections
on others country (ex. Podemos in Spain)

French companies in Africa:

1. The impact of foreign investment

2. The access to resources (the role of firms for the growth of France and not the
development of African countries)
3. Consolidate international statute through the maintenance of a “special relations” with
African countries (French language at the UN; African elites speaking French)

4. Sharing of culture is good for economic links; French advisors have an influence on
the African elite and can direct their economic choice
5. Corruption (Foccart, Il Cot) Migrants from India, Pakistan and Ghana in the UK:
1. Former colonial ties and diaspora effect (there is already a community of people of
your origin)
2. Remittances (money send back from the migrants to its home country) which are very
important sources of revenue at the national level; there is no official number because
lots of this money are send trough illegal channel
3. Political debate and economic impact on the sending and receiving country (fuga di
cervelli, lavoro sottopagato, ecc..)

Football: 2014 World Cup in Brazil:

1. Investment infrastructure that creates immediate job opportunity, and thus growth in
the
short terms
2. Expenditure of public money in something not useful
3. FIFA having an impact on national legislation (ex. the sending of beer near to the
stadium)
Trade Negotiation between the UE and the US:
1. The interest of multinationals
2. Is it good for the Eu market and the Us market? Who are the winners and the losers?
It is
easy to understand when the trade agreement is made between a poor and a rich
country,
but in the case of two bi economy it is hard to say.
3. Regulations on goods
Microsoft and Facebook:
1. Major company that can influence political decisions (data sharing and privacy, that
can be
used by politics and firms to see which your interest are and put advertising)
2. New technology and democracy (ex. arab spring)
Drug-trafficking in Colombia and Mexico:
1. Who’s in charge? The legitimacy gained by Narcos (ex. Pablo Escobar)
2. The real market is in developed country
3. Drug traffickers are global actors, involved in really global networks, and therefore
they can
have a strong impact on political decisions
4. Para-polìtica

THEORIES OF INTERNATIONAL POLITICAL ECONOMY

Nationalism

Liberalism

Critical/ Marxism theory

Concern

Interest of the nations

Well-being, corporations.
Under what conditions is
this cooperation between
economic actors possible?

The welfare of the working

class. Interest of the
working
class.
The
dependency theories with
the
struggle
between
centre and periphery.

Origins

15th century : emergence Industrial of the nation states and of (18th/19th)

Mercantilism Authors

A. Hamilton - F. List - S. A. Smith - D. Ricardo - R. Marx, R. Cox, Cardoso

Strange Keohane (dependency theory),

Units

States as unitary actors

Big states = winners

Assumptions
(economic
system)

Economic strength is a The sum of individuals Capitalism

based
critical
component
of interest lead to the exploitation
national power
collective good.
domination.

revolution Reaction to liberalism in

19th century

Firms, individuals

Social
center/periphery.

classes,
on
and

Key
dynamics Struggle for power and Mutual
benefit, Class struggle, exploitation,
and interactions wealth
cooperation is positive.
cooperation is not possible.
Cooperation possible but
with winners and loosers :
zero sum game (when
someone wins another
looses) so it is unlikely
because of the difference of
interest
International
economic
system
competitive
:
promotion of own interest
Objectives
of Protect the interest of the Free market and rules,
economic policy states (taxe on the imports, Enforce property rights in
protectionism)
order to make sure that
people can exchange.
There are clear norms that
actors can follow to reach
the collective goods.
Give more power to the
lower classes. Work on the
zero sum game. The state
is not autonomous. State is
an instrument. Promote
the interest of the working
class.
Wants a revolution. Change
the
terms
of
the
international
economic
policy and system > leads
necessary
to
the
revolution.
Renegotiate the terms of
exchange
Nationalism
Influence

Liberalism

Still have protection of Globalization: main driver

national interest. Subsidies in this dynamic. Influential
to others countries.
for financial institutions,
the EU within certains
limits, the UN …

Critical/ Marxism theory

China (?), some Latine
America countries. Some
altermondialist movement,
this is social movement.

Theories and school are historically, geographically and materially grounded and most
of the time they
merge in reaction and in opposition to another school or theory.
Usually, the field of IPE is divided in the:




American way
British way
Latin-American way

The American way of conceiving IPE focuses on interests and at the maximisation of
utility through the socalled rational choice, which is a tool to understand economic but
also political decisions. This way of
thinking is linked to a more quantitative method rather than qualitative.
In the UK, the field of IPE is based on the assumptions that rationality is not the only
driver of economic
decisions. The question for British scholar is hoe is the choice and behaviour of agents
shaped by the social
structures of the economic environment (identities, ideologies, culture, norms).
Theories and schools : what for ?
•

Prio
ritize information

•
To
make predictions

To
plan action or mobilize support for particular action

To
give meaning to experience and provide alternative explanation

1. THE ECONOMIC NATIONALIST PERSPECTIVE

How States manae their economic affairs and allocate resource domestically to punch
their weight in
international politics?




Economic strength is a critical component of national power

Trade is to be valued for exports, but governments should discourage imports whenever
possible
Some forms of economic activity are more valuable than other

It focuses on the role of the State and on the importance of power in shaping the
outcomes of any
international political economy.
Its origins date back to the 15th century, during the emergence and expansion of the
nation-state in Europe.
Its predecessor is the mercantilist theory, according to which there is only a limited
amount of wealth in the
all world and therefore each state must secure its interests by blocking the economic
interests of other
states. It is a zero-sum game in which one State’s gain is another State’s loss
(Hamilton; List)
Key actors and dynamics:
•

Stat
es are the main and most important actor

The
economic power of TNCs is acknowledged but their overall power remains limited

Pri
macy of the political over other aspects of social life

Each
State has the duty to promote its national economic interests

•
•
•
•
•
•

•
•
•

In
favor of state control of key economic activities or for state assistance to central
economic sectors.
The
international system is anarchical
Eco
nomic policy is a tool to gain more power
IPE
is a struggle for power and wealth (zero-sum game)
Stat
es acts as rational individual (rational choice and maximization of utility)
The
market is governed by the activities of States; they are not « natural » they can only
exist within a
social context
Stat
es respect global economic governance norms but cooperation is unlikely
The
global economy is governed by the interests of the most powerful states
Glob
alization is largely a myth while the power of States remains undiminished

Economic nationalism today

•
Cou
ntries continue to protect their markets from foreign competition even though they have
committed themselves to free trade.
•
Man
y developing countries have relied on their States to boost economic activity, shield
domestic
industries from competition and direct finance to selected industries
•
The
best example is China, which has engaged itself in economic nationalist policies in the
pursuit of
development
2. THE LIBERAL PERSPECTIVE
What resource allocation would improve the standard of living in society and in the
world?
•

The
State is still influent to a certain extent but numerous other actors must be taken into
account
(firms and individual)

It
search out the conditions for cooperation
•

It
stresses the ability of individuals to choose between different courses of action and to
negotiate
their difference
•
The
world system is interdependent
•
Posi
tive-sum game = the pie grows bigger and everybody gain
•
Toda
y global economy is governed largely according to liberal principles
The context is that of the Industrial Revolution in England. One of the most important
liberal theorists is
Adam Smith, who believed in the freeing up of commerce and on the creation of a free
national and
international market as a method of generating wealth for everyone.
Relative vs absolute gains:
•
tive gains refer to one actor doing better or worse compared to another actor
•
olute gains refer to whether an actor is better off compared to a previous point in time

rela
abs

Different types of liberals

•

Oh
the State is fading away in an emerging borderless world dominated by
corporationsmae

Keo
the State maintain some influence and power but it is more and more embroiledhane
and Nye
in webs of interdependence of different kind (TNCs, international organization, other
State, firms,
banks, etc…)

Key actors and dynamics

•

Indi
viduals and firms

Indi
viduals and firms in pursuit of self-interest will maximize the benefits economic
exchange for
society

Stat
e is marginalized because it brings politics into the realm of economics

TNC
s brings advantages to both home and host countries

For
a market-led system

Key
nes and Hayek
◦
tive role of markets and the ability of the market to lead to prosperity
◦
is constituted by a search for wealth
◦
support globalization but emphasize the need for attention to market reform

posi
IPE
they
Coo

everybody win from trade because exchange is mutually beneficialperation

•

Eco
nomic nationalist policies lead to conflict
•

Inte
rnational interaction as a source of prosperity and peace

Keo
hane
◦
rnational agreements or regimes would maintain international economic order even if
hegemonic states declined

inte

Fuk
uyama
◦
al democratic model had triumphed over other forms of social organization

liber

Liberalism today
•

Inte
rnational institutions are founded on liberal principles of free trade

Stat
es may be happy to engage themselves in an open liberal market but they might be
reluctant to put
their own industry at risk by making them competing internationally
IPE
as a giant web of interdependence

Robert Keohane – liberal institutionalist

•

Insti
tutions or sets of rules and norms that can have a significant effect upon State behavior
if there is
some mutual interest
•
«Co
States could use international institutions to bolster cooperationmplex
interdependence »
•
The
benefits of arrangement in a particular issues areas or regimes continue independently
from the
rise or decline of the power of particular States
•
Stat
es might not agree to cooperate because they are unsure of the motives of other States.
3. THE CRITICAL PERSPECTIVE
What system of resource allocation would lead to a more equitable distribution of
income?
•

19th
century

3
variants : Marxist, feminist, environmentalist theories

inte
rests of workers, environment or women rather than State interests

there is an ongoing conflicts between workers and capitalists that would only beMarx
and Engels
resolved when the workers will seize power
Key actors
•

Soci
al class
•

reje
ct individualism of liberal theory

emb
race collective approach of economics nationalist perspectives

TNC
s contribute to the exploitation and oppression of the working class

Key dynamics
•

dom
inance and exploitation

und
er capitalism workers are denied a fair remuneration because capitalists pay workers
less than their
labour is worth

«Dependence theory»
•

poo
r countries face immense obstacles to development because they are vulnerable to
economic
exploitation from developed states (Dos Santos)

the
poor poorer and the rich richer

opp
ose to globalization
Conflicts and cooperation
•

Zero
-sum game

Wit
hin states, capitalists and workers have competitive interests and the State is the stage
of this class
struggle
•
The
tendency of capitalist States to go to war
Critical theory today
•

Wit
h the demise of the Soviet Union and of Marxist communism it practically ceased to
exist

Robert cox: historical materialist

•

eac
h historical era has a particular sensibility: different set of institutions and of
understanding

Clas
s and class conflict pay an important part in understanding political economy

«pr
oduction generates the capacity to exercise power, but power determines the manner in
which
production takes place »
Heg
emony require dominance in the economic, political, social and ideological realms
International Political Economy
Locating the field
•

mid1970

subfields of IR

Ada
m Smith – founder of liberal economics

IPE:
crosses the boundaries btw the study of politics

Economics
•
Markets are places where informed individuals can make mutually advantageous
exchanges
Neoclassical economics:
•
It
view government and government intervention in the economy as inefficient
Keynesian economics:
•

Gov
ernment are crucial to the well-functioning of the economy

Gov
ernment intervention is needed to provide a wider range of public goods and to bring
economies
out of period of recession or depression

Institutional economics:
•

Mar
kets are not natural but are the result of a series of institutions such as the legal
structure, the
financial system and social values

It
focus on the real world

Political science:
•
use of power and politics = subject of political science
•
erned with power or the ability of one set of actors to have their preferences
implemented
•
gs a number of elements to the study of IPE : the focus on power, the State and the
welfare

The
conc
Brin

Political economy:
•
How
the economy influenced politics
•
Poli
tical economy can be regarded as an attempt to integrate politics and economics along
the line of
institutional economics, or as the application of neoclassical economics assumptions
and
methods into the study of politics
International relations:
•

It
has tended to focus on issues of war and peace, the foreign policy of various states and
the
operation of international organizations

It
concentrates on the interactions btw states

Diffe
rent theories

Globalization
•
increase in the volume of economic flows across border
•
process of relative deterritorialization
•
of social relations and new centers of authority
•
significant obstacles to human interaction as technologies

An
A
Set
Less

Methods
Case studies and large n studies
•
a
detailed analysis is designed to reveal causal factors that can either be applied to
similar situations
or serve as a starting point for theory building
•
diffe
rent kind of case : « least likely » « most likely case »
•
« lar
ge n studies » is a name given to statistical investigations which use a database to fond
common
features or causes across a large number of cases
→it helps us to determine whether a particular proposition is generally applicable or
limited to a small
number of cases
•
emp
irical material for investigations
•
nev
er sure how representative the case is
Rational choice
•
acto
rs : maximize their gains and minimize their losses
•
indi
viduals try to improve their situation by calculating costs and benefits before choosing
the best
path of action
•
high
lighted the problem of collective action
◦
for
some individual it will not be rational to do the work required to provide a public good
because
it will be consumed by others with only a small benefit returning to the initiator
Game theory
•

It
examines the decision-making of actors who are heavily influenced by possible
behavior of other
parties. These actors calculate their own interest in the light of what they believe others
will do (Ex :
prisoner’s dilemma)

Institutionalism
•
It
focuses on the importance of formal and informal institutions in producing political
outcomes.
•
It
tends to use case studies and it stresses the differences between political economies
and the
distinctive role that institutions play in shaping behavior
Constructivism
•
an
intimate and reciprocal connection between human subjects and the social world
•
nor
ms and values go beyond shaping actors' interests in themselves they constitute
identities and
hence interests
•
GPE
is a set of material conditions and practices
John Ruggie: Constructivist practitioner
•
the
international system reflected the social desires or social purpose of the actors created
them
•
anal
ysts need to examine actors' understandings of institutions, as well as the
institutions themselves
•
idea
about appropriate behavior, the rule governing behavior, and the institutions that
embody
particular ideas and norms all play a significant part in shaping the global political
economy
Trends in contemporary GPE theory
Consolidations
•
subj
ect : the politics of international economic relations
•
to
build on a presumed consensus concerning the key questions to be investigated and
methods for
pursuing that investigation
•
key
challenge: specifying the relationship between domestic and international levels of
analysis
•
the
acceptance of a narrow range of questions for investigation and agreement on a shared
method
allows researchers to make progress on a number of specific issue
Integration
•
atte
mpt to combine IPE with other broad political economy traditions such as those in
comparative
political economy of classical political economy
•
the
main focus of IPE is on global structure , comparative political economy places
emphasis on
national diversity and varieties of capitalism
•
Mor
e linked IPE and comparative political economy : regionalism and regional process +
public private
interface
Expansion
•
to
expand the subject matter of IPE
•
the
failure of IPE to provide adequate explanations for global diversity starkly exposes not
only its
empirical but also its conceptual limitation
•
tradi
tional realist and liberal theories in IR struggled to explain interdependence.
•
IPE
expanded the IR agenda theoretically and empirically → but still limited
•
IPE
remains relatively silent concerning issues relating to culture, race or leisure.
•
3
issues : globalizing IPE, IPE and classical political economy, and comparative political
economy and
IPE
02/10

GLOBAL ECONOMY (Scholte; Boltanski, Luc&Chapello)

Capitalism is a specific economic model. Globalization is the process of
internationalization of human
activities. Historically they coincided but they are not the same phenomenon.
What are the causes of the current phase of globalization?
There are 4 dimensions:





Economic
trade, TNCs
Cultural
beliefs/migration/global good
Technological
Networks and TNCs
Political
 IOs, international organization, States and political leaders, élites; how the issue has
been
framed in the political debate? How there has been a diffusion of idea? How it has been
institutionalized?

Is globalization inevitable? It depends on the dimension taken into consideration.

EMBEDDED CAPITALISM (1945 …)
After the II WW a particular phase of the history of capitalism, called embedded
capitalism, started. It is
embedded in the sense that it is regulated by the States through triangle agreements
between States,
capital and labour. It was strongly influenced by the ideas of Keynes, according to which
the State should
intervene in industrial policy, definition of salaries, assistance, planning and even
property/production.
THE NEOLIBERAL REVOLUTION (1970-80s)
When we talk about neoliberal revolution we refer to the policies carried out by Volker
and Reagan in the
US, and by M. Thatcher in UK, which have been influenced by the idea of economists
such as Milton
Friedman. A period of slower growth and the oil and debt crisis of the 1970s caused the
rejection of old
economic policies which proved themselves unable to provide good solutions.
Main authors:







Pierre Bourdieu
neoliberalism = “a programme for destroying collective structures which may impede
the pure
market logic”
David Harvey
Joseph Stiglitz
Thomas Pikctly
Olivier Blanchard

How neoliberalism differ from the embedded capitalism? Neoliberalism means the end
of the social pact
between capital, labour and States.
Neoliberalism is not only an economic process but it is also a social reform with the
“financiarization” of
every aspect of life. There is a shift from the logic of accumulation, typical of capitalism,
to one of
speculation that is the idea that through the financial globalized market, money can
create more money.
The logic of welfare typical of embedded capitalism is replaced by that of self-care,
according to which the
individual itself must provide for his own wellbeing. The individual is not engaged in
strictly bilateral relation
with the State, but he can choose among different options offered by the market.
This new spirit of capitalism will spread through society tanks to techniques of
managements, practices of
accounting and self-evaluation:


make sure that you, as an individual, would feel responsible for a company’s
objectives;Bonuses
there is no analysis of the company in general but it creates a system of competition
between
individuals; the individual feels responsible because the bonus depends on his personal
work.
Symbolic individual evaluation (i.e. manager of the month)

Origins

capitalism

globalism

neoliberalism

Bourgeoisie/workers New
modes
of
production
like
foredooms
Introduction of machine
and technology - Division
of labour
Associated to social
movements, emergence
and institutionalisation
of trade unions (left
political
parties)
urbanisation - mass
production
and

Associated to social Associated to

movements.
movements
There is three important
historical movements in
the globalization history.
In the 19th century :
- The emergence of the
international system
(alliances
and
diplomatic practices)
- Triumph of economic
liberalism
- Cosmopolitanism
:
diffusion of ideology.

social
Definition
- Mode
of
production
- Main
ideas/principl
es
- Concrete
mechanism/c
hannels

Relations with
the other two
(common
point/difference
s)

capitalism

globalism

consumption
>
standardized
Industrialization
sheepery that make
possible
european
expansion
Industrial revolution in
the UK : 1750-1870
I. Wallerstein and the
periphery > colonization

- Migrations
:
still
important
to
understand
current
globalization
- Political experiences
- Transnational
civil
society
- Colonization

It is about capital
accumulation.
It
is
centered
on
the
colonization,
the
industrialization and the
standardization.
There is a certain life
styles and the creation
of new worlds. It has to
do with colonization that
was
an
important
moment in the capitalist
moment.

Difficult to find a Free

movement
definition. There is no capital
consensual definition.
The
big
issue
of
globalization is that we
don’t really know what
we are talking about.
Connections between
people
« time-space
compression ».
Globalization
includes
many economic and non
economic
aspects.
Economically, it is about
the
time-space
compression. Today, it is
instantaneous.
Free
movement of capital
and people.
There are new actors.
This is the global
governance. There is an
institutionalization
of
international
regulations. There is
concrete institutions and
practices. It is not only
anymore at the regional
level.
There
are
denationalization
of
economic relations.
Problem of the notion :
in practice we know
what is it but in theory it
is not so clear; The main
misunderstandings
about the notion of
globalization is the

neoliberalism

of
capitalism

globalism

neoliberalism

denial and destruction

of
cultural
and
economic identities. The
main issues is that if it is
an analytical concept.
There is no clear
definition
about
globalization.
It
is
difficult to separate the
concept
and
the
ideology.
Some people refuse to
use it analytically.
It is not new, the first
experiences
of
colonization.
To
be
analyzed analytically, it
has to be considered as
a linear process. But it is
not true.
There is a limitation of
globalization, We must
not taking it for granted.

BEFORE THE SPANISH CONQUEST OF 1500s





Agricultural production was the norm

Economic activity was on the local level
However: intercontinental trade moving luxury goods for thousands of years
Main trading routes from Asia to Europe:
- overland: via central Asia and the Mediterranean
- By sea: through Southeast Asia, the Indian Ocean and the Mediterranean

THE EUROPEAN EXPANSION

Characteristics:




Not in a vacuum
Drivers of expansion
Europeans purchased desirable goods from Asia, the Middle-East and Africa with
silver or gold
they seeked new sources of silver and gold

Industry, Empire and War: 1800-1945






« Pax britannica »? (1815-1914)

Industrial Revolution (UK, 1750-1870)
Human cost
Expansion of free trade (UK) vs protectionism (Germany, US)


Competition between European States led to a new bout of expansionism and open
warfare

Concluding remarks:





Growth and imperialism went hand in hand

Capitalism based on division of labour (domestically and internationally)
Economic globalisation worked through cooptation, innovation and coercion
The role of ideas

The World Wars:






IPE transformedTwo wars + Interwar economic collapse

New economic system/ stability only after 1945
US: prominent role
New states

FROM IPE TO GLOBAL POLITICAL ECONOMY (GPE): 1945…

Cold War: 3 Worlds:
1. US-led Western political economy
2. Communist political economy
3. The Third World
A THIRD REVOLUTION?




Information revolution?
Trade liberalisation, growth of TNCs, rise of East and Southeast Asia in production,
capital mobility
and floating exchange rates
Globalisation of economic activity, productivity, social networks, changes in warfare
From
embedded capitalism to neoliberal state and economy

GLOBALIZATION









No consensus
Description and prescription, explanation and ideology
Economic foundations but not only economic
Not new
Not inevitable/ irresistible
No fixed outcome: open-ended
Not a condition but a process, historical tendency
Socially and institutionally embedded

XIX CENTURY: KEY MOMENT

No tabula rasa (Bayart, Global Subjects)
1.
2.
3.
4.

The emergence of the international system

Triumph of economic liberalism
Cosmopolitism
Migrations
5. Political experiences
6. Transnational civil society
7. Colonization
ELEMENTS OF A DEFINITION




Time-space compression
Worldwide – or rather interregional, intercontinental - economic interconnectedness, i.e.
patterns
of exchange and enmeshment
Rescaling of economic space, denationalization of economic relations

THE DEBATE



Substantive evidence?
Globalists vs. sceptics:
- Fundamental barriers
- Growing segmentation

CONCLUDING REMARKS





Integration and fragmentation, inclusion and exclusion, convergence and divergence

Growing but uneven
Regionalisation as complementary
Compared to the pre-1914 period, changes may be more qualitative than quantitative
09/10

ECONOMIC FOREIGN POLICY (Giacalone; Dur, Andrea&Elsig)

How do States handle their economic relations with other States? How do they relate
with globalization and
global economy?


Realistic, nationalist view

 Economic policies’ decisions depend on the relative power that a State has in the
international
system and not on his domestic features
Liberal view
There is a link between democracy, free trade and peace: democracy promotes trade,
which
promotes peace, which promotes democracy; so the domestic political regime matters
Radicals
the domestic structure does not matter that much, even if you can think about domestic
actors
in terms of élites sharing the same type of material interest with countries; it is all about
reinforcing the power of this élites which are a domestic but also a transnational
component

The weakness of the Global South in imposing their strategies is connected with:


Specialization and low added-value that leads to vulnerability

- South Countries’ economy is not diversified but rather specialized in the production of
few lowvalue products (cotton, bananas, coffee, etc…)
- South Countries are price-takers, that is the price of their product is defined by the
market.
This means that if the price of the product their economy is based on falls their all
economy at
stake
Weakness of State and informal structure of economy
No national capacities to exploit their own resources and thus the reliance on TNCs
Likability of corruption






Economic foreign policy can be looked from several perspectives:





Structural
Institutions
Bureaucracies and leaders

Institutions and bureaucracy:





Do institutions matter? The 3 schools

Autocratic vs. democratic regimes
Proportional representation systems with strong political parties generate lower levels of
trade
protection and other restrictions than plurality rule systems; in which particular local and
regional
interests have a greater influence
Bureaucracy can be influenced by lobbies

EFP: North and South:






Resources
Influence of external forces/international structure
Modes of production and insertion
ratification by Congress less important than the interest of powerful domesticDecision-
making
groups; this influence is less open and transparent
16/10

THE STATE IN THE GLOBAL ERA (Strange, Hibou)

The State has lost power over:


Monetary issue
Central Bank are mostly independent and the power of the State to decide over
monetary issue
has diminished
single currency and consequent State’s loss of the power to handleEuropean Central
Bank
their monetary system
Finance
- Deregulation
- Capital mobility can be an impediment to the power of the State (ex. taxation on rich
people
can be bypassed by moving capital abroad)
Security
there are private company working for governments in war situation- Privatization of
security
acting as contractors; the problem with this private actors is the question whether or not
they
have to follow the rule of international law (are they acting on behalf of the State or
not?).


Moreover delegating leads to a void of responsibility that prevent States from being the
focus of
complaints (ex. the case of private company providing visa)
Social issue and Welfare state
- There are incentives for the individuals to take care by themselves of their welfare: for
instance
in many country there are private complementary system in health and pension
- In the field of education the Bologna plan has made university more autonomous (they
receive
less public money in the name of autonomy, but for this reason they have to increase
taxation);
there can be an influence from the private sector by proving scholarship, funding for
research (if
you receive money from a private company then there can be some pressure on results
of your
researches)

There is a perception of a retreat of the State:




Is it so in reality?
If so, how much globalization is responsible for this retreat?

There are 3 sets of answers:

1. Structural factors
2. Ideational dimension
3. Strategic dimension
STRUCTURAL FACTORS
It refers to the implication and consequences of globalization for the capacity and
autonomy of the State or,
in other words, we refer to the constraints of the external environment for domestic
political actors.
globalization is so powerful that has led to the States’ loss of power:Hyperglobalization
thesis





Economic globalization limits the capacity and autonomy of the state

Mobility of capital
States must internalise the preferences of capital
Tax evasion, social dumping, competitive deregulation, race to the bottom
- Social dumping is related to foreign direct investments and it refers to the incentive for
government to lower their social standards, because they want their labour force
cheaper on
the labour market and thus more competitive. However reality shows that FDIs are
mainly in
rich countries were the labour force is well paid, meaning that the price of labour force is
not
the only and main driver of FDIs; also qualification of labour is important for the firms’
benefit.

In opposition to the hyperglobalization thesis, some argues that there is no convergence

towards a unique
economic model. Even if there is a convergence towards capitalism, capitalism present
itself in a variety of
ways:





The Nordic capitalism system with a great level of social protection

Conservative model (Germany, Frence)
Liberal model (UK)
Capitalism in emerging countries, in which there I strong State intervention (China)

THE IDEATIONAL DIMENSION

It refers to the way in which political actors understand the constraints and opportunities
associated with
globalization and to the consequent appeal to the language of globalization.
With this regard, the question is: are ideas and perception of globalization stronger in
explaining the
retrenchment of the State than globalization itself?
THE STRATEGIC/INTENTIONAL DIMENSION
It refers to the role of political actors in the (re)creation of the external environment and
to the process that
sustain or impede globalization.
The main argument is that there is no retreat of the State per se but there is a
transformation of its role: it is
not true that the State does not play a role in economic international activity anymore,
but its role is simply
changing.
P. Cerny says that we are moving from the welfare state to the “competition state”: now
the main mission
of the State is not to provide welfare or to get directly involved in the production, but to
make the Country
economically more competitive in the international market.
Nowadays, Countries receive grades from ranking agencies, which decide whether they
could receive
finance for economic project, whether their debt is sustainable or whether they can
enter the financial
market. Therefore, the State must guarantee that the Country places well in ranking
system by sending good
signal to international market forces.
An important idea is that it there is no point in distinguishing between the State and
globalization, because
there is no contradiction between the two of them. In fact, when we talk about reforming
the role of the
State, the actor in charge of the reform is the State itself. According to this school of
thoughts, States are
not passive victims of globalization but, on the contrary, they play an active role as
agents of globalization.
Jean-François Bayart provides a set of historical example to confirm this thesis. For
instance, he says that
the 19th century was at the same time the century of the deepening in economic
exchange beyond national
borders, and the century of the birth and consolidation of Nation-State. Therefore there
is no opposition
between globalization and State’s power. Moreover, he argues that the process of world
unity does not
contradict the historicity and diversity of society: the diversity of economic arrangement,
forms of state
intervention, social practices, cultural beliefs, religious identities have not disappears
and we are not
witnessing the westernization of the world.
In the book “Bureaucratie”, David Graeber argues that because we live in a neoliberal
world, we all assume
there is retreat of the State, while in reality the size and power of bureaucracy has been
increasing in the
least decades.
SUSAN STRANGE
Susan Strange is an important author for the consolidation of the subject of IPE in the
UK and worldwide.
She writes in the 1990’s, a period in which there was a desperate need for a new way to
look at IR, and she
tries to reconcile political issues with the economy. She proposes to put aside military
power and to focus
on the role of economy and firms. She talks about the “diplomacy of firms”: diplomacy is
not the monopoly
of the State anymore. According to her economy is a major driver of globalization and
therefore, in order to
understand contemporary international relations we should look at economic factors and
actors.
She believes in a “retreat of the State”: the State had less power both internationally
and domestically
because, due to the pressure of globalization, the State has lost autonomy and the
capacity to claim
monopoly and control over decision making.
Why is there a retreat?




The market dictates the rule

Firms and TNCs
Globalized finance/ Global investors/ technology

B. HIBOU
She writes in reaction to this text and proposes a different thesis. She says that
privatization can be
strategic, being a voluntary action of the State. It may be very convenient to delegate
“dirty work” to private
agencies, so that there is no clear responsibility and accountability for what it has be
done (ex. mercenaries,
Israeli check point). Moreover, sometimes privatization is not such a traumatic event. In
fact, for example, in
many ex-communist States, after the transition from communism companies,
companies have been
formally privatized but what happened in practice was that the privates who bought
those companies
where part of the same political and economic élite which “owned” them before.
CONCLUSION






Globalization and GPE are « politically constituted » (Castells)

Politics is a critical factor in shaping the dynamics of globalization
No terminal crisis of the nation-state but political choices are constrained/ circumscribed
Gap between the very powerful technological and economic factors driving globalization
and the
weaker social forces contesting its logic
The struggle for globalization’s soul: what politicians and social forces make of it
23/10

INTERNATIONAL TRADE (O’Brien, chapter 6; Gallagher)

What institutions, rules and mechanisms supervise, organize and regulate international
global activities?
How are divergences of interest dealt with so as to protect order, cooperation and
predictability between
Countries?
With regard to international trade there are 2 main debates:



Why free trade? The effects and benefits

Politics: the global trade regime

1. IS FREE TRADE BENEFICIAL OR HARMFUL?

One key date in the process that has led to the liberalization of the market is 1846,
when Britain repealed
the Corn Laws, which had protected aristocrats and farmers for years. This was the
result of a struggle
between industrialists and workers (in favor of the repealing of the Corn Laws) on the
one side, and landowners and farmers on the other.
SMITH (1723-1790)


Absolute advantage
the aim of a country is to increase its trade relative to that of its rivals so as to increase
its
wealth (fixes amount of gold)
two Countries could benefit from trade is they specialized in the goods they produced
better
than their rivals and traded with each other
zero-sum game

RICARDO (1772-1823)


Comparative advantage
Countries should specialize and produce the goods and services in which they are
most efficient
Even weak Countries will benefit because their resources are used efficiently,
productivity
increases
Positive-sum game

FREE TRADE REDIFINED: HECKSCHER-OHLIN THEOREM

In Ricardo’s theory model, differences in labour productivity are the sole determinants of
comparative
advantage. Modern theory (Heckscher-Ohlin theorem) focus on factor endowments:
capital, land and
labour. In this case, comparative advantages arise from the different relative factor
endowments of that
Country.
CRITICS OF FREE TRADE
MERANTILIST/RADICAL





Free trade undermines national economies with unequal exchange that leads to uneven
development.
The regulation of economic life must seek to enhance State power or protect national
groups.
Regulation can also be a matter of national security: protection of strategic industries
(food
security, weapon industries).
Free trade can be a threat to our culture

THE CASE OF DEVELOPING COUNTRIES




Import Substitution Insustrialization

A Country assesses its main imports, then erects barriers against those external
industries
which produce them in order to encourage local firms to produce them instead
Infant Industry (List)
The State provides temporary protections for new industries to allow them time to “grow
up”
and become competitive
The degradation of the terms of exchange (Raul Prebisch)

Arguments in favor of free trade

Arguments against free trade

Access to new markets

Access to cheaper products

Economies of scale

Increase in productivity

Specialization

Free trade
undermines national economies

Unequal
exchange lead to uneven development
KEY HISOTRY FACTS




Britain repeal the Corn Laws1848

Cobden-Chavalier Treaty: UK/Continent1860-1873
Protectionism in Europe, mercantilism in Germany1870-until WWII


Permanent tension between free trade and protectionism

FROM TOLLS TO TARIFFS

In the Middle-Ages, the collection of tolls (the money that a person had to pay to local
leader in order to
gain a permission or protection) was one of the oldest functions of governments and it
was at the centre of
the State revenue and power. Tolls were the expression of the military power and the
political sovereignty in
the context of a divided Europe.
Nowadays, tariffs have decreased while non-tariff measures (NTMs) have increased:






Quotas
The application of specific limits on the quantity of imports of their value
Subsidies
Payments made to particular industries to help them to be competitive on the
international
market
Currency control
Limit the availability of foreign currency for the purchase of foreign goods
Administrative regulations
Include bureaucratic procedures, systems of advance payment, minimal domestic
content rules,
special marketing standard and safety provisions
Voluntary exports restraints
Whereby one Country agrees to limit its exports to a third Country. This agreement is
usually
made because the importing Country threatens to place barriers against the goods of
the
exporting Country
2. THE GLOBAL TRADE REGIME
The actual global trade regime is the one of the World Trade Organization (WTO).
Global trade regimes seek
to reduce protectionism, uncertainty and unpredictability of international trade relations.
The assumption is
that international agreements promote and stabilise economic exchanges between
Countries against the
regulations of national governments.
THE GATT


It was set up after the Bretton Woods conference (1944) and in reaction to the failure of
the
International Trade Organization (1948)

23 countries

Art. I: Most-Favoured Nation principle

GATT Contracting Parties have to extend to all signatories the benefits of any
agreement that it
might reach with any other Country
The GATT provided a forum and a legal regime within which Countries were
encouraged to
negotiate and to reach agreements to lower tariffs on a reciprocal basis





Normally a Country would conclude such an agreement on a bilateral basis with the
principal
supplier of a good, but the resulting lowered tariff would be accorded to all Countries
exporting
that good to that Country
The aim of the MFN principle was to eliminate discrimination between trade partners
However, non-discrimination introduced the problem of free riding where Country might
take
unreciprocayed benefits from lowering of tariffs by other Countries

Art. III: Non-discrimination

treat foreign products no less favourably than domestic ones

Art. XI: against quantitative and other NTMs

Reciprocity
“on a reciprocal and mutually advantageous basis” (developing countries’ request:
“special and
differential treatment”)

The GATT negotiations worked through the so-called “rounds”:

First round was dominated by the US, while then Europe took the lead.
More bilateral than multilateral negotiations but the agreements expanded through the
rules of
the MFN
Tokyo Round (1973-79): the most significant result were the production of 6 legal
codes that
dealt with NTBs, tariff reductions and safeguards for development
Uruguay Round (1986-93)
It set up the WTO system with the establishment of the WTO organization and the
Dispute Settlement Understanding (DSU)
The final agreement comprise about 60 agreements (550 pages), covering subject as
widely diversifies as agriculture, safeguards, trade in intellectual property, rules of
origin, textiles and clothing, technical barrier to trade.
It included the General Agreement on Tariffs and Trade which incorporated the GATT
into the WTO system

THE WORLD TRADE ORGANIZATION



1995

149 member Countries

The WTO is an international organization with a legal personality and an increased

power with
regard to the follow-up of agreement implementation.

Art. IX: “If no Member […] formally objects to the proposed decision”

there is no “pick and choose” but you have to take the all package“Single undertaking”

It is a member driven organization

A Ministerial Conference is held every 2 years


It is a sort of independent and neutral judge with a dispute settlement mechanism


If a State argues that some discrimination or abuse is done by another State, the
complaining
State can constitute a file/report and make a case. The panel of experts has to make a
decision
about it within 6 months. Like the UNSC, the DSM has no coercive power (cannot apply
sanctions) but it can allow the complaining State to apply unilateral retaliation measures
if the
accused State does not change its policies/practices

There is no need of the consent of both parties to open a case nor to implement the
panel
decision

Members engaged in a dispute must use the WTO system to solve it; they cannot resort
to
unilateral measures

Countries a legally obliged to accept and implement a negative dispute settlement

decision, and
it is possible for an injured party to take retaliatory action

However, it is impossible for weaker member to oblige a powerful Country to implement

an
adverse decision

Moreover, weak or developing Countries, which constitute almost two third of the
countries
represented within the WTO, have to face the lack of representation of their interest.

A REGIME IN CRISIS
The Seattle Ministerial Conference of 1999 represented a very powerful moment for the
alter-mondialist
movement. They protest against the WTO rules and the negotiations rounds and cycles.
It was the first
time that they tried to disturb and stop the round talks in order to ask for more regulation
of trade.
For a very long time, the WTO negotiation has been based on the interest of the US and
the EU. The
agenda was set by the US and the EU, which initiated all the agreement and presented
them to the other
member to reach a multilateral consensus. The division between North and South of the
world is very
important in this regard and in particular for what concern agriculture, which is a key
issue in developing
countries.
Individually, many developing countries are too small and have limited bargaining power
in international
trade negotiation (they are also underrepresented because their delegation, which are
smaller and less
prepared, have material problem to reach the negotiations). However, coalitions
frequently arise on a
specific issue or emerge at a particular conference. Some major developing countries
seek to enhance their
bargaining power through joining a coalition and other smaller countries join groups for
defensive purposes.
An example of developing country coalition is the Cotton-4, which brought together the
main African cotton
producers (Benin, Burkina Faso, Chad and Mali) against US subsidies to American
cotton producers in the
South.
Is the WTO an undemocratic organization?
Some argue that the WTO is one of the most democratic international organization:
Its large and diverse membership represent most of the trading nations in the world and
a
variety of economic and political system
The consensus method of decision-making in the WTO gives each country a voice
The WTO is relatively transparent in terms of making access to its documents easy to
obtain
Critics of the WTO reject these points and rue that the organization fails to provide
sufficient access
for civil society groups in its deliberations


THE DOHA ROUND

The Doha round should have closed in 2005 with a new package, but it still hasn’t
underlining the crisis of
the WTO system:




The rule of consensus makes it difficult to reach an agreement.

The organisation has to face a proliferation of topics and actors (154 members), with
different
culture, identities and interests.
The relation and division between North and South is now more complex because it
consists of a
triangle including the less developed countries, the developing countries and the
developed
countries. In other words there has been a fragmentation of the South which does not
allow them
to use the coalition card anymore.
Since 1995, there have been growing doubts about globalization and free trade. At the
beginning
of the 90’s, there was a form of optimism but then, with the difficult economic transition
from
communism to liberal markets and the raise of transnational justice movement, doubts
appeared.
The EU and US refuse to make substantial reductions on agricultural tariffs and
subsidies.

INTELLECTUAL PROPERTY
The concept of intellectual property is born to grant State protection to producers of new
ideas, who tries
to internationalise the protections and demand constraints on generic industries:
Developed counties regard IP as a security against the misappropriation of IP
 Developing countries led by India and Brazil view it as a barrier to trade and are
concerned over the
monopolies effectively granted in developed countries for products such as
pharmaceuticals which
are of public interest.
REGIONALISM AND THE WTO
Regional trade agreements (RTAs) are spreading all over the world (230), especially
after the creation of the
WTO. This is partly due to the slow pace of multilateral negotiation which has made
countries prefer to
engage in regional agreement.
The question is: are regional deals good for the purposes of international free trade or
do they represent an
impediment? The application of the European rules among EU members is an
impediment for a broader
liberalization of trade?
1. RTAs facilitate global negotiation
According to this view, RTAs are not in contradiction with the purposes of free trade but,
on the
contrary, a first step in the run to free trade:
-

The existence of regional identities reduce the number of actors involved

Deeper integration is easier in regional groupings
Regional agreements can serve as a model for global treaties
Regional agreements can enhance the competitiveness of domestic industries, paving
the way
for full liberalisation
“Domino effect”: TNCs lobbying for equivalent access
2. RTAs are an impediment to global negotiation
-

They are based on discrimination (with increased barriers for product from other
regions) which
is violation of one of the most important principle of the WTO
They enable large powers to impose their will, undermining the political support for a
multilateral agreement
The fact that regional entities need to reach an agreement within itself before
negotiating
internationally could slow the process of global negotiation
There are less incentives for exporters to lobby for trade liberalization
They enable government to exempt sensitive sector from liberalization
06/11

THE INTERNATIONAL MONETARY AND FINANCIAL SYSTEM (Woods; O’Brien)

1. INTERNATIONAL MONETARY SYSTEM
= a set of arrangements that govern the exchange of one currency for another.
In the absence of an international money and central bank, an IMS is necessary for
economic
activity (importers and exporters need to conduct business on their clients’ currencies
and to take
profit on their own)
-

How one national currency is exchange for another?

How should money be used to facilitate economic transaction and how should it be
managed?
What should the relations btw currency be?

2. INTERNATIONAL FANANCIAL SYSTEM

Who gets to borrow money and on what terms?
The gold standard was the international monetary system in place before the 1 WW. It
collapsed during the
2 WW and was replaced by the Bretton Woods system.
There have been 3 major transformations in the monetary and financial system:
1. From fixed exchange rates to floating exchange rates
2. From national to regional currencies
3. Financial deregulation and capital mobility
The IMS must address 3 issues:
1. The role of exchange rates
- The value of different currency in relation with one another
- Will they be fixed of floating, with their valued changing in response to the market?
2. The nature of reserves
- The guarantee that the central bank have in order to meet payments
- Commodity or form of money that the central bank holds on hand to meet demands for
payments of currency?
3. The control of capital movement
- Control over the capital coming in and going out of your Country or not?
- Does a state allow money to flow freely in and out from its borders or are there
restrictions
concerning how much can be moved over a particular period?
Capital control can protect one nation economy against speculative capital flows. An
example is that
of the Thai Bath crisis of 1997. Before 1997 huge flows of capital entered the Country in
order to
finance its economy whose prospect were very promising. However, when some doubt
about the
credibility of the Thai economy started to grow, there was a brutal retreat of the capital
that had
entered in the country. This sudden retreat disturbed the economy as a whole. This is
the reason
way after that experience there the Thai government introduced some form of capital
control (i.e.
an investor cannot take out all its capital from the country in less than a year)
DEFINITIONS:


Balance of payments
= total of the value of the goods and value flowing in and out of a country;
do you sell enough to pay for what you buy abroad?
If you buy more than you sell, you have a balance of payment deficit (with the risk of
running
out of money)
Devaluation
= monetary authorities decide to decrease their exchange rates in relation to a
reference or a pool
of currency


Depreciation
= the value of a currency decreases on the exchange market not as a result of an
official decision,
but due to recession, trade deficit, emission by the Central Bank (it’s not a political
decision but an
economic consequence)

Possible solutions in case of a deficit in the balance of payment:




Devaluation
If you devaluate the euro, European product are cheaper internationally and therefore
moreEx
attractive for American consumers
Reduce the imports
- State-led economies can do it by command (put barriers to foreign product such as
tariffs)
they can raise interest rates in- Opens economies can do it by slowing down the
economy
order to harden access to credit: if the rate is 2% I can get cheap money, make more
invests and
so inject money in the economy to improve my own production; but if the interest rate is
10% I
would have interest in keep money in the bank
Increase exports
increase the quality of your product in order to make it more- Increase
competitiveness
attractive by investing in Research&Development
There is trade-off between:
Hurt trading partners through subsidies


 if you want to increase your competitiveness one possibility is toHurt your citizens
reduce social services so those who produce my exports will have to pay less tax for
social public services and thus reduce the cost of production (lower the minimum wage;
reduce tax paid by firms but also your welfare expenditure)

There are 2 main exchange rate systems:

exchange rates of different currency float1. Floating-rate system
stability of the exchange rate between the different currencies2. Fixed-rate system
Until WW I the system was fixed while today we have shifted to a floating exchange
rate. Why? Which one is
better?
Before WW I the monetary system was that of the gold standard, in which the value of
the currency was
related to the amount of old own by the State. After the WW II the world economy
shifted to the Bretton
Woods system, which is not based on old but on the dollar.
In a fixed exchange rate system the government establishes a fixed price for the
currency in terms of an
external standard (gold or dollar). Each government holds a stock of gold or dollars
which they hold in
reserves and used in order to deal with imbalances in their balance of payments by
selling or buying it on
the exchange market.
In opposition to that, in a floating exchange rate system there are no limits to the
variation of the currency
against one another, they can float freely. In this system the value of a currency is
determined by the
equilibrium between the supply and the demand that the market reaches independently.
There is no need
for States’ involvement and the system depends on trade, private actors and investors.
Fixed or floating? “Unholy trinity”

Monetary autonomy

Capital mobility

stability in the exchange rate

Stability in the exchange rate, monetary autonomy and capital mobility cannot o
together. If the system is a
fixed-rate one it is stable but it lose monetary autonomy (in the gold or dollar standard
you cannot
devaluate as you wish). There is a trade-off between autonomy and stability:




there is no speculation over the value of you currency because we know which is
theStability
value of your currency today and which will be tomorrow
the possibility to devaluate your currency allows you not to have to deflate
yourAutonomy
economy in order to reduce your import.

Some francophone African countries decided to establish a fixed exchange rate related
to the value of the
euro because they prefer to sacrifice some of their autonomy for more stability.
Why today we have chosen a floating rate system? One of the reasons is because
governments have grown
increasingly reluctant to lose their monetary autonomy. In fact, loosing monetary
authority means that
governments have to pay the domestic costs of their imbalances.
Gold standard system
It was the fixed exchange rate system that worked from the end of the 19 th century
until the 1920s. The
reasons why the old standard system failed are twofold:


The distribution of economic power among Countries



The system worked because the British pound was as good as gold. The pound system
relied on
the power of the British economy and it was the reference currency for international
trade.
However, WW I was a great challenge to the economic power of the UK which started
to
decline. This decline led to the rise of the US as the new economic superpower, with the
dollar
becoming the new reference currency in the system

Domestic structures


Many authors argue that after WW I most of the Countries did not agree anymore on
sacrificing
the possibility to devaluate their currency through deflation in order to achieve more
stability.
Because of democratization and the achievement by the working class of the right to
vote,
governments wanted to do more devaluation and less deflation in order to gain popular
support. In fact, devaluation is domestically less painful than deflation because it allows
to
boost exports and cartel imports.

The Bretton Woods system

The main philosophy under the new system is that of embedded liberalism philosophy.
It was established in 1944 after a series of conferences led by the famous economists
Keynes and White.
During the 1930s governments were preparing to the war and thus were not in a very
cooperative mood.
The aim of the new system was to find a balance between the fixed and the floating
exchange rate systems
in order to gain stability but maintaining some domestic autonomy. This was due to the
fact that, after the
war, the most urgent thing was for Countries to rebuild their economy and, after the
democratization
process, their government were pressured by the need to satisfy their population.
Which are the rules of the system?


One ounce of gold could be converted in 35 $




The value of the other currencies was fixed but with reference to old but to the dollar
(Why?
Because European Countries did not have much gold)
Dollar could be converted into gold while other currencies depending on“The
adjustable peg”
the dollar were allowed to float by maximum 10%

By allowing exchange rate to float up until a 10%, European Countries were allowed to
devaluate their
currency to deal with their balance of payment issues.
The IMF was created in order to establish more cooperation over monetary issues. It
was in charge of the
fund and of assessing the demand by Countries who wanted to devaluate their currency
by more than 10%.
In this way the system allowed some stability too because even if exchange rate were
allowed to float, in
order to overcome the maximum 10% a government needed the IMF’s permission.
The whole system was based on the idea of a balance between different principles.
The stability of the system depended on the ability of the American government to
exchange dollars for
gold at any point in time and that is why, during the ‘50s and the ‘60s, the system
started to be pressure by
the growing mistrust about the actual convertibility of the dollar. After WW2, big quantity
of dollars went
out of the Country because of defense and military spending and because the Marshall
plan. So in the ‘60s
there were more dollars going out from the US than dollars going in the US. The
European Countries’
assumption that the FED (US central bank) did not have enough gold anymore was
linked to the fact that,
through the Marshall Plan, they were accumulating dollars in their banks. The belief was
that, since they
had so many dollars in their central banks, the FED would not be able to give gold back
to anyone if all the
Countries had asked for it at the same time.

This issue of credibility and trust is very important. If a government starts to believe that
the FED will not
able to give gold in exchange for dollars it is likable that it will ask for gold as soon as it
can. If all the
government make the same assumption, it is probable that they will asked for their
dollar to be converted
into gold all in once, deeply affecting the system.
As a consequence the dollar was depreciated and the US had to face an imbalance in
their balance of
payments.
A couple of solutions existed in order to save the Bretton woods system:


It would have been the end of the system because gold could not be exchanged
forDevaluation
35 dollars anymore.

They would adjust in their relation to the dollar and then notRevalue other currencies
everybody would have wanted dollars and gold.

There was some sort of solidarity between Japan and Europe because they both did not
want to revalue
their currencies. The reason was that they were rebuilding their economies and they
believed that the US
has a balance of payment issue it should deal with it by itself by deflating its economy .
Who should bear the cost of exchange rate adjustments? The debate over the
responsibility took place both
at the domestic and at the international level.

dollar
In 1971 the system came to the end of convertibility is not exchanged for old anymore
This meant the failure of the Bretton Woods system and the set up a system based on a
floating exchange
rate.
The floating exchange rate system
The new system did not put an end to the political conflict over who should bear the
costs of adjustments.
The “sovereign debt crisis” in Southern European Countries raised the question
ofExample: the Euro
who should bear the costs of the crisis. European Countries preferred to sacrifice some
of their autonomy
for the sake of stability and integration. Which Countries would benefit from devaluation
and lower interest
rate?



Germany still argues for a strong euro because it is the strongest EU exporter and it is
not
dependent on other EU partners
Other EU Countries would prefer devaluation of the euro in order to boost their
economic growth
through exports

Germany prefers stronger euro and higher interest rate. Why do they want higher
interest rates? Because
low interest rates create the risk of inflation and Germany fears inflation and the failure
of the European
Central Bank.
This is the reason why Greece had to carry out austerity policy; because it had to bear
the cost of
adjustment. Greece need to be more competitive but it cannot do it through devaluation.
13/11

GLOBALISED FINANCE AND FINANCIAL CRISIS

To finance the real economy through investment project.What is the function of
financial markets?
Financial crisis tells a lot about the nature of the financial system:



They are the result of economic activities and political decisions, of the dynamic and
complex
interaction between the political and economy sphere
They reveal the fragility of the system structures

THE SUBPRIME CRISIS

What are the main causes of the subprime crisis?




Credit extension in the housing market (risky/ non-solvable households)

“cut the credit” into “slices” in order to spread the riskSecuritization
because of financial deregulation and the evolution of the financial system,“Too big to
fail”
there has been a huge concentration in the financial system which means that banks
where
involved in many different activities. This concentration spread the risk and fasten the
loss. Those
who fail contaminate the all system because the number of assets they have in the
market is very
high and their failure implies the failure of the others. The “too big to fail” argument is
the has
justified the US biggest State intervention in the financial system ever (bail-out or rescue
plan); the
US could not let their big financial actors to fail because this failure would have had an
impact the
overall system.
We have to distinguish among 3 dimension of the crisis:




Macro-level
Mezzo level and actors (Stiglitz)
Micro-level

Macro-level
Less/no state regulation that is replaced by the regulation ofWhat does financial
deregulation means?
the market (free flows of capital); the idea is that the forces of the market can reach an
efficient balance by
themselves.
Why there was a financial liberalization? It is because the evolution of market and
technology or because of
It is the result of both:political decision?


Financial transaction can be done at a faster paste and in greater amount thanks to new
technologies (TLCs, high speed telecommunication, satellite connections and internet)

The growth of trade and MNCs (multinational corporation) increased the demand for
financial
services

In the ‘70s, as a result of the oil boom and the debt crisis in developingThe
“petrodollars”
Countries, private banks started to recycle the new wealth of oil-producing Countries.
The dollars
that were created by the oil producing Countries were spread by private banks in order
to finance
the development project of several developing Countries (first in Latina America, and
then in
Africa). As a consequence, financial integration and the circulation of capital between
different
countries expanded.


After the set-up of the Bretton Woods system and of its floating monetary system,
currency started
to be more volatile which means that it started to be interesting to bet on currencies.
There was a
new demand from private actors to diversify assets in order to play with the comparative
value of
the different currency

Financial deregulation is not only the result of the forces of the market but alsoPolitical
choice
the result of concrete political choices made by State themselves. The idea is that the
extension of
globalization and privatization are promoted by the State itself, which decide to limit its
own power
in the economic sphere. There was a growing influence of the neoliberal ideology,
according to
which regulation does not disappear but the market, and not the State, is in charge of it.
This new
vision is in contrast with the previous embedded capitalism and the idea of State
regulation.

Financial liberalization:


It started in the ’70s and deepened after the 90s

The first country promoting liberalization were

- the US in 1974
-

the UK in 1979

with the dismantlement of capital controls. Since then, govern cannot control and restrict
the flow
of capital in and out the States’ border, meaning that individual and companies can
freely move
their money in and out the Country)


In the EU the end of capital control was established 1988

In the UK the financial reform were referred to as the “big bang”, implying that a
revolution was
taking place in the financial sector. The pillars of this big bang were 2:
- any foreign company can enter into the UK stock market
- banks, insurance companies and stock broking companies can compete against one
another and
they can invest and end being involved in the activities of one another. In the previous
system
this 3 actors have clear separate function:
emit credit Banks 
exchange financial product (provide intermediation in the economic Stock brokers 
exchange)
provide insurance for credit Insurance company 
The separation among the 3 sector disappeared, whit an increasing completion and
concentration of these 3 activities

The outcome of this financial deregulation was important for big Countries like the US
and the UK,
but also for some small Countries and islands which decide to specialize in off-shore
and financial
activities as a development strategy.

Why the financial crisis in 2008?



Two main causes:

- Risky credit being given to non-solvable households (loans were extended to people
who could
not afford them)
- Spread of the risk throughout the all financial system in the US


After the technological bubble burst in 200, the FED kept interest rates low in order to
stimulate the
economy and incentives further investments. In this way firms could get cheaper access
to credit in
order invest in innovation. This had a consequence also on individuals, who were able
to get very
good interest rates for the purchase of house.

The development of new financial instruments contributed to the break-up of the crisis.

Instead of one bank taking the all mortgage for one household, the bank took a house
mortgages and divided the credit into slices. Each of these slices became a financial
product
that the bank sold to domestic or foreign investors in the financial market.
This practice was generalized by non-traditional banks, the so-called shadow-banks
(investment
banks, hedge funds, insurance company)

By the end of 2006 the housing market reached its peak and prices started to decline:
- Sub-prime lenders lost money as clients defaulted on their mortgages (people were
not able to
pay anymore)
-

Financial firms faced collapsed from exposure both to bad mortgages (risky mortgages
that
were given to individuals who could not pay back) and to derivatives (= toxic products
generated in the slicing down of credit)
Because financial firms collapsed, credit was restricted both to consumers and
businesses
the financial crisis spilled over into the real economy

With financial deregulation new financial products have proliferated. Financial products
can be:


originate-to-hold = when lenders make loans with the intention of holding

themPrevious system
through maturity (=the end of the mortgage)

Originate-to-distribute = when lenders make loans with the intention of selling

themNew system
to other financial institutions or investors


With this kind of financial product a bank share the risk and the potential benefit of the
emission of credit by selling it to private investors.
In the previous system, if the bank gives credit for 3% it means that its benefit that 3%
of the
credit. In the new system, as the bank slice down the credit and sell it to different
investors, the
source of its profit is not only the 3% interest rate but it also came from the exchange of
the
different slices of credit. I
Instead of keeping the credit in their institution, investment banks sell the credit and
pass the
risk to other investors. Their profit comes from selling the credit as fast as they can
because
every time you sell it they get a commission.
The logic is completely different: the credit keeps moving among an increasing number
of
financial actors and the money comes from your ability to manage and profit from the
increasing risks of the financial markets linked to the possibility that exchange rates
might
change.
The idea was that the exchange of financial products creates benefit and, therefore,
there was
an increasing demand for more financial product and for more exchange of it.

In the previous system, the risk was all taken by the traditional bank, meaning that if you
do not
pay your credit, your traditional bank take the risk and pay some insurance. In the new
system
the risk is spread because if you do not pay your credit back all the owner of the
different slices
are going to lose some money. At the beginning this was seen as an advantage
because, by
spreading the risk, it is not only one bank that will have to face the all loss but many
different
actors that will have to face just a little portion of the loss. The problem occurs when
there is a
massive credit crunch and the losses are big and spread all over the system.

In the previous system there was a direct relation of trust and accountability: you were
accountable from your bank for paying your mortgage back and the bank was
responsible for
checking your income to make sure that you could actually pay your mortgage. In the
new
system, where is trust and accountability? The sharing of responsibility and risk
encouraged
actors to engage in risky behaviour because they are the main source of profit and
because if
something goes wrong the loss is shared and there is no clear responsibility.

One of the consequences of deregulation was the development of “shadow-banks”,

which include
investment banks, insurance companies and hedge funds:


Financial institutions that conduct parallel banking activities but are subject to less
regulation than
traditional banks
The main difference is that traditional banks have to keep a certain amount of capital
within the
institution. In this way they are protected because even if several clients do not pay their
mortgages they still have a reserve of money. On the contrary, shadow-banks do not
have to
follow this provision, which means that they are much more vulnerable to credit crunch.

prime refers to the condition to get credit, thus sub-prime means that this condition
wereSub-prime
lowered in the early 2000th
In the new system you can have adjustable rate mortgages which mean that if the
interest rates decrease
you will have to pay back less. The problem is that the same logic applies also when the
interest rates
increase, meaning that you will have to pay more.
Mezzo-level (Stiglitz)
Stiglitz point to the responsibility of all the actors involved in the chain of credit and
financial securitization.
Because of economic growth and increasing exports from Asia and oil-producing
Countries, there was a
great amount of liquidity available on the market that made foreign investors look for
investment
opportunities. What these foreign investors found out was that the new Wall Street
financial products were
more interesting than the traditional bonds emitted by the US Treasury and started to
invest on them. That
is way the crisis internationalized, shifting from a being a housing bubble in the US, with
money coming
from some Arabic and Asian Countries being indirectly involved in the mortgages taken
by American family.
According to Keynesian school (of which Stiglitz is part), the causes of the crisis are to
be found in a lack of
regulation by State authorities. Stiglitz highlights that government entities defaulted
because they did not
use the mechanism of regulation they should have used. They delegated their
regulation power to an
increasing number of private actors, which were encouraged to adopt risky behaviour in
order to make
short-term profit in the exchange securities and financial products related to credit.
Some right wing economists point at the responsibility of the government as well, but
they do not believe
the problem was a lack of regulation but it was just the opposite: an abuse in
government regulation. They
highlight in particular the government policy of home ownership which produced a lot of
the toxic credit
that on the financial market. In other words, the government contributed to the extension
of this credit
through its home ownership policy. Since 1992, the Congress was pressuring the
Department of Housing
and Urban Development to extend home ownership. The government set aggressive
home ownership goals
with the desire to extend credit to family previously denied with access to the financial
market. The idea
was to allow more American families as possible to become the owner of their own
houses but the problem
was that it was done under risky condition through the emission of low quality credits.
With this regard,
Stiglitz point at the responsibility of credit rate agencies, which had the task of
assessing the quality of the
different credits. The problem is that they were very compliant in saying that credits
were of good quality
when they actually were not.
Micro-level
Most of the literature in IPE is regulatory, which means that it looks at the macro-level:
How is the monetary
system regulated? How is the financial market regulated? How is international trade
governed by the WTO?
Etc…
Some authors advocate for an everyday and cultural IPE. Their objective is to
understand IPE through microactors (ordinary citizens), daily economic practice and the
cultural beliefs that can be associated to
economic activity.
With regard to the 2008 financial crisis, taking this perspective means asking why was
credit attractive?
what was the culture of the pre-crisis economy?
The idea is that American society had a whole got involved in the credit crunch because
there was no
opposition between Wall Street and ordinary citizens because they share the same
interests:



producing and exchanging creditWall street

getting cheaper access to credit and becoming the owner of their housesOrdinary
citizens

How could that happen?

1. Wall Street
The ideology produced by the high personalities in Wall Street played a big role. They
proposed the
idea that market was the expression of the deepest human nature and as a result they
will
ultimately be correct.
An anthropologist analysis of the people working in Wall Street for investment banks
showed that
their personal life reflects in a certain way the economic system and vice versa. The
precariousness
of their carrier and lives (they are called to make vary fast decision in order to sell or buy
financial
products, they have to sustain a heavy load of work and cannot have a fulfilling personal
life, they
can be fired at any time) contributes to an economic system where planning is not
possible and
what it is valued is short-term profit.
In Wall Street there is a belief that the market is some sort of independent force. They
see the
market as a sometimes benevolent and other times destructive force they have to adjust
to and on
which they cannot have any impact.
In this culture of precariousness bonuses are very important. If the company lose
money you are
probably getting fired but the generalization of bonus incentives to make quick and
short-term
profits.
2. Ordinary citizens
They started to believe that they could be part of the system and benefit from it. It was a
period of
easy access to credit in which home owning was promoted by the government and by
the
mortgages brokers with their advertising activities.
This philosophy of home ownership was supported by the government through
references to the
American identity and the fulfilment of the American dream: the idea is that if you
contract a
mortgage to buy a home then you are a true American citizen (Bush).
Home ownership and the contraction of mortgages were also supported by mortgages’
company
which carry out a heavy advertising campaign characterize by a populist tone: “we work
for you, not
for the banks!”, “we make getting you home loan easy”. Some mortgages companies
did not even
ask for some certification of you income: “simply signature”, “come in and sign”.
Since both the government and the mortgages company were making a promise of
inclusion, this
kind of discourse had a particular strong impact on Afro-American and Latino families.
Another problem was that the common belief was that prices were bound to go up and
that it was
easy to speculate on the house market. That is way 40% of the house were not bought
as primary
residence but with the aim of speculate. This was an extremely risky behaviour,
especially if we
take into account that the people who were buying those houses were low-income
families.
Behind this new culture there was also an anti-welfare philosophy, with the individual at
the centre
of the system. The idea was that the State would not provide your pension but by the
financial
market and you as an individual have to go on the stock market in order to ensure your
pension.
This is pretty much in line with the American identity: you are in charge of your own
destiny.
04/12

DEVELOPMENT (Rostow; Escobar)

There is a multitude of explanations for uneven development:
3. Lack of technology
4. Lack of education
5. Lack of infrastructure
The lack of infrastructure impedes trade and it impedes national and regional
integration.
6. Foreign control on resources
Developing Countries need to rely on TNCs to the extraction of their natural resources
because they
do not have the means to make the extraction by themselves. For instance, in Mali
there is lots of
gold which is extracted by private companies and these companies give to the Mali
government
only 17% of the value of the gold they extract. These kinds of contracts are possible
because in their
negotiation there are on the onside very weak and likely corrupted governments, and on
the other
powerful TNCs with very good lawyers. TNCs defend themselves by saying that they
have to sustain
very high investment costs in this kind of operation.
7. Political instability and corruption
Developing countries are characterized by high level of corruption which affect macro-
economic
variables.
Corruption is not only present in developing Countries but also in developed Countries,
which
means that corruption is not necessarily and impediment to economic development. The
causality
between corruption and lack of development should not be overestimated. One thing
that African
government says is that the focus is always on the corrupted Africa but nobody cares
about the
actors that corrupt them, which are Western actors (mainly Western TNCs working in
the oil field).
8. Geography
In a lot of Sub-Saharan countries the driest areas have less economic opportunities and
that can
generate or exaggerate political tension. This is the case of the geographic diversity
between the
South of Mali, which is called the “fertile Mali”, and the North, which is a rather deserted
zone. This
difference creates conflicts among the different actors who need water, for example
between
person cultivating land and those farming cattle. These kinds of conflicts are linked to
the lack of
technology which impedes developing Countries to adjust the environment to their
economic
needs.
9. Religion and ethnicity
Religious and ethnical conflicts cause political instability, but this does not necessarily
lead to
economic downturn but it rather leads to the appearance of informal and illegal form of
economic
activity created by the economy of war (traffics of weapons, drugs, humans).
10. Structural factors
It refers to the historical legacy connected to the colonial period.
The word development applied to the economy is a recent and modern word. It is
related to notions like
modernity, progress and enlightment but we started to talk about economic
development as such only
since the end of the II WW. Before that, the word development was used in the natural
science in order to
refer to a biological process. Moreover, it is important to know that, in different points in
time, each
development paradigm has been based on a different knowledge about what
development was. In other
words, the dominant definition of development has changed over time and the way in
which we think
about development today is different from the way we used to think about it in the
1950s. There is a
continuum in what we call development but the definition changes over time. This
matter because
depending on the definition you give to the concept you can justify and implement
different policies and
establish your power. In fact, States can extend their power in the economy and in
society “in the name of
development”. What matter is the link between knowledge and power and the question
is what type of
economic assumptions and foundation are behind the different definition of
development throughout time.
The economists play an important role in this development business because they have
the ability to say
what the causes underdevelopment are and what the solution should be.
The first big theory of economic development is that of modernization, which was
developed by Rostow in
the 1950s. His intention was to write a non-communist manifesto on economic
underdevelopment,
providing an alternative theory to Marxism able to explain poverty in the Third World. He
looks at
governments’ policies both in the economic field and in the non-economic processes
through which they
seek the development of their Country. He sees economic history as a sequence of
stages and identifies 5 of
them:
1. Traditional society
limited production functions
2. Preconditions for take-off
Start of economic diversification and of capital accumulation
3. Take-off
“achievement of rapid growth in a limited group of sectors where modern techniques
are
applied”
Increased use of technology
Some economy of scale
Some rationalization in the production process
4. The drive to maturity


5. The Age of High Mass Consumption

extension of modern as a primary objective
increased security and perhaps leisure
enlarged private consumption (a big section of the population get access to
standardized
product for basic and non-basic needs)
seek enlarged power on the world scene
According to Rostow these are the steps that newly independent States will follow in
order to achieve
development.
Criticism:


Colonial legacy: affects the process?

In the text by Rostow there is no recognition that these preconditions for take-off may
not be
met because of the colonial legacy. He ignore the inequality among Countries and he
ignores
the weight of the past in shaping the existence or absence of these preconditions. The
colonial l

No empirical evidence from developing countries

Rostow’s theory claims to be based on the example of developing countries but he
actually did
not look at the actual conditions of socio-economic life in developing countries

Small number of ‘laws’ applying to ‘all societies’

According to Rostow there is only one way toward mass-cultural society that all
countries
around the world can follow

Socio-centrism: Homo oeconomicus not a universal phenomenon

Rostow considers homo oeconomicus as a universal phenomeon


Justifies colonialism?
“without the affront to human and national dignity caused by the intrusion of more
advanced
powers, the rate of modernization of traditional societies over the past century and a
half would
have been much slower than, in fact, it has been”
It justify international interventions and the breach of national sovereignty in poor
countries,
because what matters is to boost the take-off

Something quasi-divine about the way “mass consumption” becomes universal

Risk to mix up cause and effect: individualism/profit, entrepreneurial spirit /

industrialization
For example, are good institutions a precondition for economic development? Or are
good
institution the result of economic development?

Linear, evolution conception of history

Modernization as Westernization


Since the 5 stages are drawn on the example of the West, actually modernization is a
synonym
for westernization

This idea of modernization lead to:

Marshall Plan and the need to help Europe’s reconstruction
The Truman doctrine and its Fourth Point = US hegemony by means of a generous
proposal that
claimed to be beyond the ideological divide between capitalism and communism
Growth and aid the only possible answer Development as a global strategy: Dominant
paradigm 
leading to economic growth
This idea of development as a process of modernization justified the pursuit of growth
through aid and
industrialization project and, in particular it led to planning. With planning we refer to the
construction of
worldwide institutions which guarantees uniformity beyond national and political
differences. In the ‘50s,
60’s and 70s we assist to a generalization of planning institutions in developed and
developing countries.
There was the idea that without a national plan the country will not develop.
THE PLAN
Translates ideology into action, coordinates all ministries
= defines and includes timelines, a time perspective and targets
ꜜ
PLANNING BY SECTORS AND REGIONS
ꜜ
DEVELOPMENT PROJECTS
Managerial units, active ingredients of plans. Driven by cost-benefit analysis
ꜜ
THE PEOPLE
Where change happens. Public participation, devolution because “outcomes are
dependent on the will of
individual people”. Even in the colonial project, which was based on coercion, there was
still the hope that
the masses will believe in the project and participate on it
Dependency theory was an important reaction to the modernization theory. It put the
stress on the
historical legacy and on the lack of economic diversification. It focuses on structural
factor in the sense that
it looks at the international structure, which is seen as divided into two conflictual
entities: the centre and
the periphery. The the economy of periphery is determined by the development and
expansion of another
economy which the former is subjected to. In this situation the development of the South
is not possible.
Relations in the world economy are unequal because the development of parts of the
system occurs at the
expense of other parts. Development of newly independent countries is impossible
unless there is a radical
change in the global political economy, in the terms through which the North and the
South relate to one
another.
The centre has the monopolistic control of the market, it accumulate capital that is
necessary for making
investments and profits and through which they take control over other economies.
The policy recommendation for dependent countries are the following:
Increase productivity and capital accumulation to “raise the well-being of the masses”
and to
stimulate consumption
Active role for international trade
infant industry: protect the national industry until it Industrialisation and healthy
protectionnism 
is ready to join the international competition
Import and incorporate technology in local production in order improve productivity and
not to be
dependen ton the centre for the production of everything that has an added value
There have been some project of land reform and social equalisation, in order to
renegotiate the
term of decision making and of trade between rich and poor countries (very little, until
late 1950s)
There is a huge debate over the relevance of the dependency theory on over this
recommendation and
development project. In the late ’70s and in the ‘80s there was an “ideological shift” due
to:
First development failures in developing countries
during the period of the oil boom in Debt crisis in Latin America and Africa as of the
early 1980s 
Arab Countries, private banks were recycling in development project the dollars
produced; however,
because of the oil crisis and the consequent increase in the oil price private banks
ended the
project, deeply affecting the development of poor countries to which the development
project were
addressed and leading to a debt crisis
Because of the debt crisis these governemnts were unable to meet their commitments
and
therefore they had to turn to IMF and the WB for assistance. In order to get access to
these loans
they need to respect those conditionalities that were determined by the IMF and the
WB. These
conditionalities refers to the so-called Washington consensus, which consisted in the
implementation of structural adjustment programme.
Structural adjustment programmes became the new recipe for economic development.
They called for:
Market deregulation
Anti-inflation policies and budgetary discipline
Reduction of public spending and administration
Trade, price and financial liberalisation
Privatisation of parastatals
Promotion of foreign investments
The outcomes of this new strategy were mixed:

The IFIs (international financial institutions) said that the structural adjustment program
would
produce low economic growth with high social costs in the beginning.
Some argue that the structural adjustment program not only came with high social cost,
but in the
end they did not bring the economic growth that had been promised.
The IFI argued that the SAP did not worked as they should have because the
developing countries
had not applied them as they should have done, being reluctant to implement all the
measures
they were asked to implement
Counter-examples: Asian miracle and Eastern transition
Imperfect implementation by recipient governments
Undemocratic/ imposed


The IFIs were forced to reform their policy recommendation because they were not able
anymore to negotiate with the developing countries because their leaders, which
wanted to be
re-elected, did not want to negotiate with the IFI and implement the shock therapy given
its
high unpopularity at the domestic level.

emergence of the “Post-Washington Consensus” = the IFIs acknowledge that they need
to
change their policy recommendations

The problem is that for IFIs was very hard to reform. They are institutions dependent on
their past, just like
States, based on certain practice and ideologies which are hard to be transformed.
There were several
obstacles to reform the IMF and the WB and one of them was the strong believe in the
neo-liberal theory.
The economic base of what institution did not change and continuity remains between
the Washington
consensus and the post-Washington consensus. What has happened is that, instead of
changing the
economic core of their recommendation, they added something to this hardcore set of
believes:



good governance and the focus on institutions (not only economy)

basic health and basic education for everyonesafety net

They set the millennium development goal aiming at the reduction of poverty, which
meant good
governance + economic structural adjustment + safety net.
No matter which theory we take into account, either modernization or dependency,
there has always been
an attention on the structure of the international system:



developing countries were supposed to take-off and catch up with themodernization

theory
developed countries
the terms of exchange between the North and the South need to bethe dependency
theory
changes

On the contrary, in the contemporary era development is only about domestic reform: it
is only developing
countries that are to be blamed and they need to reform themselves. The same
argument is done for the
individual, with a stress on micro-finance and cash transfer policies:


microfinance is not the State that should provide assistance for the poor, but they
have to create
their own business and generate their own revenue


 the government gives subsidies to families if they respect somecash transfer policies
conditionalities (for example, you need to send your child to school)

The reference to the international structure remains relevant only at the level of the
social movement, but
it is completely put aside in the mainstream policy-making circle.
There is also an increase of the scope of international intervention. The international
community does not
only intervene in the reform of the economy of the developing country, but it also get
involved in Statebuilding activities, in governance-agenda, in civil-societies participation.
Some would say it is good because
development is a multidimensional process and the international community should
intervene in all of its
aspects. On the contrary, others would argue that it is not good because developing
countries are facing an
increasing violation of their sovereignty.
We have also lost diversity in the type of policies that are implemented in order to boost
development.
Before there were socialist, liberal, communist and many others different development
model. This diversity
has decreased and now there is a formal convergence towards one unique liberal
model to development.
We have seen the increasing power of the international financial institutions over
different matter with the
domestic jurisdiction, but this increasing power has not expanded geographically. The
WB and the IMF only
have power only with the least developed countries, because as soon as Countries can
avoid dealing with
the IFIs and as soon as they can avoid their conditionalities they do.
11/12

THE POLICY OF FOREIGN AID (Morgenthau; Wade)

The problem in defining traditional cooperation is that there is no only one type of
cooperation, meaning
that the cooperation carried out, for instance, by France is different from the one carried
out by the UK, or
the WB or the IMF. Each institution has a different mandate, different resources and
different policy-making
structures. Of course we suppose that the goal of the bilateral cooperation will be the
promotion of the
national interest abroad, while it is a bit more complicated in multilateral cooperation.
Colonialism plays a big role: for instance, the beneficiaries of French aids are mainly
French old colonies in
Africa because there is a common language, history, economic interests, etc…
The criticisms usually addressed to traditional cooperation are the following:

Conditionality
Foreign aid comes with condition on how those aid should be spent.
Since the ’90s, the traditional donors (not the emerging ones: China, India, Brazil and
some
others) have agreed that they will continue to provide aid to developing Countries only if
the
IMF says that their macro-economic policies are sound. In theory if the IMF says that
the
Country is “off track”, meaning that the government is implementing irrational and not-
sound
economic policy, all the donors should cut their aid. However, sometimes donors find
ways and
arguments to bypass this rule. For instance, in the case of French old colonies, France
has often
argued that it will continue to provide aid to these governments, even if the IMF has
declared
them “off-track”, because it has good relations with them and it would be more
destructive to
stop the provision of aid.




In political terms, this conditionality is perceived as interference in the national

sovereignty of
recipient Countries.
On the contrary, China does not ask for any kind of conditionality apart from the
nonrecognition of Taiwan.

Selection
There can be different criteria to choose to which countries give aid:
The best one
The one that need them the most
When you look at the data about aid you can notice that the Countries which need the
aid the
most are not necessarily the ones which get them. For example, in Latin America
Colombia is
one of the top recipient Country and this is not because of economic needs but mainly
because
of securities concerns (narco-trafficking and the presence of the guerrilla). This is an
argument
especially used by the US, which claims that aid is not only about poverty but also about
security, and in particular their geo-political interest (it is not good for it to have security
issue in
Colombia).
The problem is, if there is a limited amount of resources for aid policies which should
be the
criteria for the selection? Very often the criteria are political (the defense and promotion
of the
national interest, no matter how you define it). Other times the criteria is that of he “best
student”: the idea that some compensations should be provided to good performance;
Countries that improve their governance, which reduce their poverty, would receive
more aid.
However this criterion creates a tension between performance between performances
and
justice/equity.
Rhetoric of autonomy
African governments do not use the rhetoric of autonomy that much, while on the
contrary
they try to benefit as much as they can from foreign aid. They try to accumulate aid from
different donors: the WB, the former colonial authority, China and Brazil. They want to
play on
the different side and seize all the different opportunity.
The rhetoric of autonomy is more present in civil society and in critical and radical post-
colonial
studies in the academia.
Do aids actually foster socio-economic development?

WHY STUDY AID AND INTERNATIONAL COOPERATION?



Aid is an important source of development and financing for the least developed
Countries,
especially in Such-Saharan Africa and Centro-America. These Countries do not have
good access to
international financial markets (they have bad ranking with regard on risk and thus
investing there is
not safe) and every time they want to finance a project they need to turn to donors to
get better
terms than the ones they would get on the financial markets.

Development strategies in poor Countries are highly extraverted, which means that they
are
supervised or even driven by international actors through conditionality and the
expertise provided
by the IFIs.

HOW TO STUDY AID?






Does aid promote development?

Why do donors give aid?
Are aid and development a Western imposition?
How does the world of aid work? “Aidland”: Projects, Professionals and Bureaucracy

DEFINITION OF FOREIGN AID

The OECD defines aid according to 4 conditions:
1.
2.
3.
4.

The funds has to come from a public entity

The fund must benefit a developing territory/country
The fund must be aimed at another country’s development
The fund must meet favourable financial conditions
- Batter rate loans than the ones that the recipient country would find in the financial
market
not reimbursement of the fund- Grants

In principle, the definition of foreign aid does not include:






Peace-keeping operations
military interventions
police forces
research (except when the research is directly related to development issue in
developing
countries)

AID MODALITIES:


Loans vs grants

Project aid
They are delimited in space and in time (example the construction of school)
They are implemented through what is called PIS = parallel implantation structure
 Since all the decisions are made by the donors, there might be no alignment between
what the
donors and what the recipient wants to do coordination. For instance, a donor can con
in a
developing Country and build a school without even consulting its government.
There can also be problem of coordination because the donors do not coordinate its
project
with the recipient government nor with other possible donors. For instance, all the
donors may
be financing the building of schools and nobody is taking care of how the teachers in the
school
are going to be paid in the future. As consequence, when the project is done and the
school is
built, there will be teachers and the building will be used for other ends.

Programme aid
The donor attempts to supports the overall strategy in one sector (ex. health,
education, etc…).
the donor set-up a programme with the recipient There is alignment and coordination 
government and other donors taking care of all the different issue connected to that
sector

Budget support
They are increasingly popular, especially in the British DFID, the department for
international
development, and in the European Commission.




Donors do not menage the funds but they merely put money, which become public
funds, in
the recipient country treasury
It is well appreciated by recipient Countries because they are in charge of the spending
of the
fund. They argue that this kind of aid contributes to build the capacity of their
administrations.
This vision of autonomy has to be mitigated because since donors are giving to
recipient
countries money directly, they ask for an intensive policy dialogue with the government,
meaning they want to know what these governments are doing and they will try to
influence
them.

WHO ARE THE DONORS?



ex-colonial powers or big powersBilateral donors

Banco del Sur, South-South cooperationEmerging powers and Southern countries

World Bank, UNDP, regional banks, EU (members + Europaid (Commision): 50% of

theIOs
world’s total aid)

ex. Bill and Melinda GatesPhilanthropists, foundations

CONTROVERIES IN THE COUNTING OF AID



select only funds that meet the 4 elementsOCDE/DAC since 1961

Some claims that “Phantom Aid”, meaning fund that are put in statistical category of aid
but should
not be there, account for the 61 % of total global aid (ActionAid, 2005).

The DAC is having a hard time in deciding what should be count as aid and what not,
because DAC
countries have an interest in saying that their funds can regarded as aid:


Debt relief (back to donors): it is not true aid but it only consists in the passage of
money

Expenses related to military interventions (i.e.)

After the military intervention, countries try to gain the support of the local population
and in order to do so they spend money there. For instance, there was a rise in the US
aid in Iraq and Afghanistan after the military intervention.

Subsidies to refugees / exile-seekers during the first 12 months after their arrival (Italy,
Germany, Switzerland, France): they cannot be counted as aid because the donor is not
fostering the development of Syria.

Overseas territory (France) = 40% French aid is not « fresh money » (Coordination
SUD)

AID-DEPENDENCE
The concept of aid-dependence has been defined by Lancaster and Wangwe in a book
called “Managing a
smooth transition from aid dependence in Sub-Saharan Africa”
According to this definition, “aid-dependence is a situation in which a government (or
other entity) receiving
concessional external assistance would suffer serious economic and possibly political
repercussions if hat aid
were significantly reduced or eliminated in a short period of time”.
This dependence is not just about numbers, but also about sovereignty and mentality. In
sub-Saharan
Countries:



the news are mainly about what donors have done in the Country because donors pay
newspapers
and TV news to have advertise what they are doing in the Country;
key ministers are followed by the donors’ technical assistance, along with the African
personnel
which they advise.

In Mali foreign aid account for ¾ of the State’s special investment budget, which
represent the money that
the State can invest in development projects, and for 27.6% of general budget.
In October 2007, Mali’s Ministry of Finance Abou-Bakar Traoré said: “what is important
is to have an
economic and financial program that will be coherent enough to be accepted and
supported by the
international community”. What is striking in this quote is that one would expect the Mali
government to
say it will frame its own program and then it will ask for international support for its own
program; on the
contrary in his words the economic and financial program seems to be already there,
especially framed in
order to get money. Usually aid-dependent Countries think about their development
program in the light of
whether or not the WB or the IMF will approve it.
The aid industry has created a professional, managerial, urban and transnational elite in
aid-dependent
countries which provide lots of work. In Senegal, for instance, the aid industry is the
second major job
provider. Moreover, what is problematic is that for young educated people it is easier to
get a job for foreign
agencies rather than being hired by the public sector of the Country. This is because
aid-dependent States
are still under structural adjustment program and therefore they cannot hire a lot of
people in the public
sector. As a consequence the public sector of the recipient State is deprived of its best
elements which
preferred to work in aid agencies which ensure better working conditions and
perspectives. A dramatic
example is that of Afghanistan after the US intervention and during the consequent UN
humanitarian
intervention. In that context, teachers were working as drivers for the UN which needed
personnel able to
speak English. Therefore Afghani teachers were leaving their job in the schools in order
to work for the UN
which guaranteed much better salaries. There is an internal brain-drain that is created
by the presence of
aid-agency.
WHY DO DONORS GIVE AID?

According to the school of thoughts, there are different answer to this question:


foreign aid is another tool to promote the national interestMorgenthau

Economic interest


In order to sustain its economic development China needs lots of natural resources, in
particular oil. For this reason, China establishes strong cooperation with those Countries
which
own lots of natural resources, in order to sustain its economic development at home.
This is not
so different from what European States did in the 19 th and 20th century when they
imported
resources from their colonies in order to feed their economic development.


France is doing some development assistance in China and in India, which are not
exactly the
Countries which need financial liquidity the most, in order to make investment. France
justifies
this aid assistance in terms of global public good, environmental issue and sustainability
of
China and India’s development but what is truly behind is the will to open new markets
for
French firms. The idea is to have a presence in these Countries in order to be able to
negotiate
other deals that would be profitable for French firms.

Security issues


The US provide aid to Colombia for security reasons, because they consider that it is in
the US
security interest to have a stable, pacified, drug free Colombia.

Promotion of values and ideas



During the Cold War the objective of aid was to contain communism on the one side,
and the
influence of the US on the other. Therefore, in many developing Countries there was a
competition between the US and the URSS providing assistance in order to avoid the
influence
of the counterpart.

After the end of the Cold War, the objectives of aid are mainly related to security issues,
the
fight of terrorism, the reduction of migration. France has invented the idea of co-
development,
which it has especially carried out in Senegal and Mali: the idea is that they are going to
focus in
the region of Kai, at the border between Senegal and Mali, where most Malian people in
France
come from, in order to avoid people from that region to come to France.


But the promotion of ideas and values is still important:






There are many German foundations that promote the idea of social democracy
Many NGOs promote democracy as conceived by the US
Brazil tries to export its agricultural model in Mozambique
Korea wants to export the Asian model for development
France promotes its language and culture

IOs and autonomy from member StatesWade

In the case of multilateral donors is difficult to understand whose national interest is
being
promoted by the IFIs. There is a debate about whether the IFIs are autonomous from its
powerful
member States. In other words, is the WB promoting the interest of the US or it is
autonomous
from it, being able to make decisions only according to economic efficiency and
economic need in
developing Countries? The text by Wade shows US hegemony over the IO. He argues
that some
post-Canadian economics (Stiglitz and Kanvur) have been fired from the WB for being
too critical of
the type of policies implemented by the WB, which according to them were being
implemented
under the pressure of the US Treasure. There is a contradiction between susbstantive
politics (US
interest to promote their vision of free market and sound economics) and procedural
politics (the
idea that decisions in IOs are made collectively)


the ethical viewLumsdaine

Aid is a form of global tax: aid is the global equivalent in international politics of the
different form
of redistribution of wealth at the national level. According to this view, aid is part of a
social and
moral dialogue between Countries that has a normative meaning in the international
society.
Lumsdaine argues that aid is an historical duty, a form of moral and political
compensation for
colonization that rich Country has to provide to poor Country because their under-
development is
the result of their colonial legacy.
These authors also consider that cooperation pays off in stability, information,
predictability. By
reducing poverty and thus risk in developing Countries, donors can defend their own
national
interest.

Usually, the reasons to give aid are a mix between the cynical and the ethical view.


institutional, organisation, human factorsBureaucracy

There is human factor that is sometimes underestimated.
The bureaucracies within the institutions in charge of cooperation have some autonomy
from
politics and they can decide what type of program to implement according to their own
culture,
beliefs and practices which determine the geographic and sectorial destination of aid.

The top10 recipients of aid in the world are Afghanistan, Myanmar, Vietnam, India,
Indonesia, Kenya,
Tanzania, […], Ethiopia and Pakistan. What it is striking is that most of them are not
amongst the poorest
Country in the planet. There are a couple of least developed countries, which are not
the worst-off in any
case. There is an over representation of Asia, whereas it is a region of high grade of
development if
compared to Africa or Latin America. None of this country is a Latin America Country;
this is because, after
the shock therapy that was imposed on their government in the ’80 and in the ’90, they
decided to reject
any help from the WB and they looked for alternative form of finance for their
development project (in
particular through oil).
DOES AID WORK FOR DEVELOPMENT?
It is hard to establish whether aid is the explaining factor of the differences between the
developments of
different Countries because a lot of other factors, a part from aid, are to be taken into
account.
There is no Country that has developed only through foreign aid while a conjunction of
factor is needed.
The most dynamic economics in Africa are not aid-dependent:





natural resourcesAlgeria
closeness to the European economy, economic diversification, oil money
(construction)Morocco
it refused foreign aid in order not to have foreign interference; economic legacy:South
Africa
capital accumulation, economic diversification, natural resources
Nigeria
One Country that is often described as an aid-success story is Botswana. However, its
development is not
only due to aid policy but also to other factors. In fact, Botswana has a big diamond
industry to which it has
connected a very savvy system of revenue management.
In the case of Korea, which is another example, they present themselves as a
successful story of aid
development. This is certainly true, aid in the context of the Cold War have indeed led to
development but
only because a set of other conditions had been met. The late industrialization of Korea
has led to a very
interesting literature which talks about the “developmental States”, which are “States
which concentrate
sufficient power, autonomy and capacity to shape, pursue and encourage the
achievement of explicit
developmental objectives, whether by establishing and promoting the conditions and
direction of economic
growth, or by organizing it directly”. What are their characteristics?







They put the focus on Research&Development

They make good use of foreign workers (ex. engineers)
They have very efficient partnership between State, private sector and researcher
they have special ministers of development which enjoyThey have efficient
bureaucracy
autonomy both from society and social interests (lobbies, trade union) and from political
power
They use an efficient developmental elite which share a common developmental
program
They have weak and subordinated civil society which guarantees legitimacy and
popular support
with various degrees of repression

The same can be said by the Marshall Plan. It certainly helped the European
development but only because
of the presence of some pre-conditions in Europe. In fact, the aid coming from the
Marshall Plan could rely
on the existing institutions and economic structures of the European Countries.
Criticism to foreign aid (Ha-Joon Chang):


Micro-credit does not work

 The bases for micro-credit are in recipient Country, whose population beg for such
credit
because they do not get access to credit. The problem is that, since it is risky costly to
lend
money to poor people, interest rates are very high. As a consequence there are many
suicidal
cases because people are not able to pay back in the end. The point is that the
assumption of
micro-credit is that every person can be a business person, which is not the case: not
everybody
is a great entrepreneur; and that because you are creating your business the demand
will
follow, while it is not what necessarily happen.
If you look at the experience of Asia what works are middle- sized and big firm. What
worked in
Korea was the partnership between the State and conglomerates. Micro-credit has no
empiric
base.

There should be more assistance to industrialisation and to assistance to planning



Donors have to work toward economics diversification and consolidation of industries

and
economic conglomerates that will be able to invest on one whole sector.

There are some political and institutional constraints that reproduce the gap between
what is needed and
what donors offer.
Institutions analyse the situation of poverty in way that allows them to address it and
according to their
idea of development:


since the WB can only address problem among States, itSouth African exploitation of
Lezotu
just does not mention the question of Lezotu in its report, avoiding the problem

each donors think about what was needed on the basis of their own conceptionDonors
in Mali
of development and what they can do (if what they can do is to finance and support
decentralization project, they will tend to say that these kind of project are the solution

Moreover, there is pervert circle according to which societies and government in

recipient Countries are
used to tell donors what they want to hear. Meaning that what people ask for in recipient
Countries is what
donors can give and not what they really need. There is a rise in project depending on
what is available and
not on what is actually needed.
ARE AID AND DEVELOPMENT FORMS OF NEW COLONIALISM?


The agencies (WB,IMF, etc…) are ruled by Northern Countries and according their
belief of
development

Saying that aid and development are a form of new colonialism exaggerates the power
of aid and
deny the extent and implication of colonialism

Under a colonial framework I invade your territory, say it is mina and everything work
through
coercion. In paternalism I claim to do it for your own good, and it is not based on
coercion.

you can’t say that development is onlyArgument against (aid are not a new form of
colonialism)
a Western project but it has promoted and implemented also by people and government
in the
South. Southern governments have used development as well in order to legitimate
their power, to
gain autonomy, to generalize the power of their economy and society. It is not just an
imposition of
the West

“history does not repeat itself but constantlyArgument for (aids are a form of new
colonialism)
reinvent everything”: it is not mostly neo-colonialism but there is some degree of
continuity
between the colonial time and current development and aid policies.

CONTINUITY: POST-DEVELOPMENT THEORIES

Kothari: from colonial to development studies
Her thesis is that there is continuity between colonial administration and development
practices. There is
continuity in the hierarchy of who is helping and who is help, ant that it most of the time
goes along the
racial line (black and white). Ex-colonies engage themselves with institutions or idea of
development that
originates in the West and have a global reach.
She makes her argument of continuity by taking the example of the UK. She notes that
ex-British colonies
have indeed gained their independence but in major ministers there still are technical
assistants, which
provide expertise and advise. There is formal independence but in the institutions things
are not so clear.
The same thing happens on the other side, where today’s research centers and
development centers are
legacy of the old colonial empire with the same people working there. There has been a
recycling of colonial
empire (V. Dimier “Recycling Empire”).

18/12

EMERGING COUNTRIES (Rodrik; Beghin)

When we talk about emerging countries we usually refer to the BRICS. Which are the
similarities among
these the BRICS?









The role of the State

Economic growth
Military power in the region
Big population and Big territory
Rapid urbanization
Pollution (India/China)
Criminality (South Africa/Brazil)
most has to do with the historicalVery high inequality (of which criminality is just a
symptom)
legacy:
Apartheid- South Africa
post-colonial societies which inherited a post-colonial system- Brazil and India

ROLE OF THE STATE AND THE ECONOMY: STATE-PERMEATED MARKET

ECONOMIES (SME)
Most of the emerging economies are state-permeated market economies. China is the
most typical case of
an SME, while this characteristic is slightly less pronounced in India and Brazil. What
does this mean?


The state, driven by a strong pro-business support for national development, is more
important
than in OECD economies.


Not an all-powerful, centralised, steering bureaucracy but close cooperation between
state and
domestic business coalitions.

These are coordinated by reciprocal mechanisms of loyalty and trust between individual
members
of state-business coalitions, based on informal personal relations, family ties, and
shared social
(elite) backgrounds

Governments are able to practice a selective opening of their economies with the
dominance of
national capital

CHARACTERISTICS OF EMERGING ECONOMIES



Corporate governance
Most major companies are dominated by national capital, and not by transnational
financial
investors. They are usually controlled by well-connected families (India) or the state
(China).
Brazil is more open to foreign ownership

Corporate finance


Firms primarily use internal funds and bank credit for their operations, which facilitates
autonomous business strategies. There are limits to financial products to be traded
(Brazil and
India) or limits to the tradability of firm shares (in China, 2/3 of all shares on Chinese
stock
exchanges are non-tradable, and are mostly held by the state)

Labour relations

Strong segmentation and segregation of the labour force. Cheap rural labour power and
state
preservation of low wages

Informality

INNOVATION
They are not very strict in the respect of property rights because they are trying to catch
up in terms of
innovation. It is only recently that these States have started to invest in research and
technology. But they
do not have a big culture of research for the improvement of knowledge and production.
DOMESTIC MARKET AND INTERNATIONAL INTERATION
They have a selective way of integrating themselves in the global political economy.
They have very strong
domestic markets and their growth is mainly based on the growth of it: in Brazil, India
and China exports
represent only ¼ of the total industrial output. Their internal markets are often protected
against
international competition.
STATE MARKET ECONOMY (SME)


Strong state control; company access to large domestic markets; protection against
foreign capital
and market fluctuations; segmented systems of (low cost) labour; limited but increasing
innovation
efforts

New type of state capitalism in contrast with liberal-democratic forms of capitalism,

especially
Anglo-American capitalism

While China and India have never been liberal, Brazil is currently developing towards a
statecapitalist direction (after liberalization during the 1990s)

BRAZIL


One of the most unequal countries in the world

Has traditionally ‘managed poverty’ without making efforts to promote change in the
socioeconomic order

Universal education and social security were not prioritised, and urban segregation,
rural exclusion,
and regressive taxation were reinforced. Since 2001, levels of inequality and extreme
poverty in
Brazil have fallen

Enduring inequality through conservative modernisation


30.3% population is considered poor

Cause? Not a general lack of resources, but rather their distribution

Rural areas: agribusiness, 10% largest properties = 78% of land

The agribusiness sector (soya) vs small agricultural production: peasants, cooperatives

and
indigenous communities

“Conservative modernisation”: lack of regulation in the labour market, no guarantee of

formal
wages and minimum social protection for most

Poverty is black (2/3 of the poor), urban and concentrated in the northeast

Regressive tax system

Improvements


Positive impact of policies supporting wealth redistribution, such as increases in the

minimum
wage, expansion in social security coverage, and support for small-scale agriculture

6 million formal jobs created

Since 2004, income increase higher for the lowest-income segments; extreme poverty
has
decreased
SOUTH AFRICA


High unemployment (26-40%) and low growth due the shrinkage of the non-mineral
tradable sector
since the early 1990s. Weakness of export-oriented manufacturing, increasing
competition

Large-scale asset redistributions. Economy was opened to international trade and

capital flows

Real wages have not risen since transition

Manufacturing lost ground to the tertiary sector: a decline in agricultural and mining
employment
has not been compensated

DYNAMICS OF INCLUSION AND EXCLUSION



Considerable reduction of extreme poverty, particularly in Brazil and China. India and
South Africa’s
reductions were less dramatic (42% of India’s population live on less than USD 1.25 a
day)

Economic growth has not translated into an improvement of inequality levels. South
Africa and
Brazil are the most unequal. Income inequality has decreased in Brazil; inequality
increased in China
and India between the early 1990s and late 2000s


Emergence of new “middle classes”

Rapid, dual urbanization. Cities became the site of social mobility

ENVIRONMENTAL PROBLEMS


Environmental strains on soil, water and air

750,000 Chinese die prematurely each year from pollution (World Bank)

Contention: the conflicts in Dalian in 2011 to close a chemical plant; riots in Shifang in
2012 against
the construction of a metals refinery; in Guangzhou in 2012 against an incinerator
project; or at
Kunming during 2013 against a giant new petrochemical plant

</div>

<!--....... CUSTOMER SUPPORT ......-->

<div id="support-wrapper" class="hidden-xs">
<a href='http://help.studocu.com' id="support-button" target="_blank"
rel="noopener" class="help" title="help">
<i class="fa fa-question-circle"></i>Help
</a>
</div>
<!--....... / CUSTOMER SUPPORT ......-->

</body>
</html>