lecture 1 Flashcards
Whats on the exam
podcasts not on exam, can use examples
you can’t study everything, focus on what she finds important (so the lectures are most important)
Economics + political economy
economics = the study of production, distribution and consumption of scarce resources
political economy = the study of the role of the state and politics in the production, distribution and consumption of scarce resources
- sometimes it means: the use of formal modeling (game theory) to understand political phenomena
*not what we’ll do in this course - two broad focuses: comparative political economy + IPE, distinction is blunt
comparative political economy
focuses on differences in eco policies (focus on within nations)
- industrial politics
- different types of capitalist systems
- drivers of eco growth and dev
- variation in institutions -> variation in domestic eco policy
International Political Economy
IPE studies the politics of the flows of production, distribution, and consumption across national borders
- international trade
- international financial flows (e.g. currencies, investments)
- sovereign debt
- migration (movement of labor force between countries)
- international aid (provision of money across borders)
politics of international economic flows
how:
- domestic institutions
- international institutions
- domestic and foreign businesses
- distributional interests of voters
- ideas and norms
- ….
influence international economic policy
- trade rules, exchange rates etc.
AND
how international economic flows influence domestic politics
- domestic politics is affected by eco shocks
e.g.
- UK Domestic Politics’ effect on trade in Europe: how elections influence eco in EU
- Eco globalization’s effect on UK politics: shocks to trade and migration may have driven vote in direction of Brexit
why should we care?
- IPE is everywhere in our daily lives (China and the US are competing over where your phone microchip comes from)
- IPE can help you understand the big news stories of todays (do eco sanctions on Russia work? How do countries deal with high inflation?)
- understanding IPE is helpful for lots of careers
- politicians need to pay attention to winners and losers of globalization
- diplomats deal with international eco policy
- economic IOs, journalism, NGOs, consultancy
old school approaches to IPE
origins in C19
- Mercantilist School = Mercantilism
- Liberal School = Liberalism
- Marxist School = Marxism
each offers a way to view the politics and the world economy : important actors (gov, individuals, class in order), relations between them and distinct eco policy recommendations
each is limited bc of their rigid frameworks & dependence on questionable assumptions
- the role of diff actors depends on the specific circumstances
- Marx would not have predicted welfare state
! we will focus on the new approach
- ideas of these approaches still influence opinions today, e.g. Trump against trade deficit, he is mercantilist
mercantilism
= oldest school
similar to IR realism:
- focus on the state rather than subnational interests
- assumption that states use eco policy to increase (relative) power
national power comes from eco power (more money + more production -> more national power)
- bigger eco -> bigger military + more capacity to wage war
- exports brings money in and increases power, imports send money out and decrease power by strengthening other states
was once partly true when the state was the eco, when revenue went to the state - positive net export increases power, import is bad
- exports vary in their importance: manufactured goods are superior (bc it is military products + increase eco power more than e.g. agriculture)
implication = the economy should be controlled to gain power
liberalism
*focus on trade, some similarities with IR liberalism
countries and individuals gain from trade by exploiting comparative advantage
- focus mainly on individual welfare
no harm in engaging in trade
- a rising tide lifts all boats, it makes everyone better of
- all trade is good, not just a positive balance (i.e. exports>imports)
you should not worry about trade deficits
implication = the role of the state should be limited
- still: protection rights, laws etc. but should not set tariffs etc. to distort the market
marxism
C19 Marx
not the policy prescriptions (spread communism) but the theory underlying them (how eco works according to Marx)
two central factors:
- capital (means of production, owned by the bourgeoisie)
- Wage Labor (the proletariat)
- subsistence wages for laborers (only get enough to keep them alive), capitalists keep the surplus
- capital becomes more concentrated and less profitable over time
- increasing inequality and eventual workers’ revolution that abolishes private property
the state exists to protect capital (not labor)
internationally: imperial exploitation of the South by the North
implication: capitalism and govs that support it are bad for the distribution of wealth
a modern approach
interests, ideas and institutions:
the interaction between societal interests, how people interpret them, and the political interests that aggregate them into policy
we use assumptions about interests, ideas and institutions to build models that help us explain an outcome
material interests + ideas + politics shape IPE
what drives political behavior? - a modern approach
- material = social interest
qui bono: whose welfare increases/decreases with different policy options? - ideational
how do people/decisions makers interpret their material interests/the state of the economy, do we want to protect the worst-off? - political/institutional
what will keep the leaders in political office, and what checks and balances are they subjected to?
interests
do you win or lose (economically) from a certain policy or proposed policy?
material interests can be shaped by endowments:
- factor of production (land, labor, capital)
- industry (what kind of industries employs you) = sector (import-competing, export-oriented, unemployed)
these endowments influence what (trade) policies you prefer
main idea:
“tell me your work and i’ll tell you your political preferences”
interests that matter differ depending on the question we are trying to answer
sometimes interests are hard to identify (we have to make assumptions and simplify)
- e.g. anyone working in an export-oriented industry wants free trade (may not be true)
- for uni studies: student aid, lower interest rates if you took out loans, pro-free trade
ideas
assumption of “objective” eco (and political) interests - often quite accurate + useful simplification of messy reality
but ideas and ideology can also matter:
- interpreting the facts: no agreed-upon eco theory + eco theory decisionmakers beliefs’ informs policy choices + individuals often use simplified mental models to understand the econ
- private households has to repay back debts, gov household may not - whose interests? do you care about yourself, family, village, region, country, ethnic group, how long is your time horizon
- sometimes people simply act against their objective eco self-interest for ideological reasons
institutions
= a set of rules that governs behavior
both enforced and unenforced
- driving on the right side of the road
- QWERTY keyboard
- Dutch Constitutions
Domestic
- democracy, dictatorship, in between
- presidential, parliamentary
- nr of parties, electoral rules
International
- WTO
- UN
- IMF, WB
- EU
