LECTURE 15 - trade and econ Flashcards
Assumptions vs Realities
Economics is about power
* Two polite fallacies in IR theory and Law
1. all actors are created equal
2. powerful actors are free to act as they choose
Authority-Market Nexus (connection)
- two basic models we have of an ‘economy/society’
1) private-enterprise, market-based economy
2) State-run, command-based economy - Are all actors created equal?
- Does even a powerful actor have freedom to act?
how powerful is the state?
“Where states were once
the masters of markets,
now it is the markets
which, on many crucial
issues, are the masters
over the governments of
states.”
Capitalism vs Socialism (theoretical)
- Capitalism
- It is an economic system in which private individuals own all
the material means of production & all economic activities
are undertaken for purpose of profit.
- Socialism (extreme version, i.e., North Korea)
- The state owns & controls all means of production. Decisions
pertaining to production, distribution are made through
central planning. The state dictates the consumption
pattern. It is based on the principle: “from each according to
his ability to each according to his needs”.
feudalism –> liberalism
- Scottish enlightenment and industrial revolution about a reset of societal power
– New capital v aristocracy, with labour loser - Should capital be allowed to operate freely?
– Hard Times for bulk of population, but arguably no
change from feudal conditions
– Push back from increasingly
organized labour, social activists - Launch of major debate on laws,
norms, regulations, ethics of
organizing production, economy
– Read Hard Times by Dickens
then read the Communist
Manifesto
Capitalism vs Socialism (characteristics)
- Capitalism
* Right to private
property.
* Right of inheritance.
* Freedom of
enterprise.
* Freedom of choice
for consumers.
* Competition (Profit
motive).
* Price mechanism on
market forces (Less
role of government). - Socialism
- State ownership of
means of
production. - Central economic
planning. - Social welfare.
- Equality of
opportunity. - classless society.
- Absence of
competition.
victory of cap
- Very few pure socialist systems
– Most successful have significant capitalist aspects - Very few autarchic economic systems (reducing their dependence on international trade ie. north korea)
- Global system marked by rise in trade
– Has fed massive consumption boom
– Trade now not just about finished products - Factor/input trade
comparative advantage
- Each country exports the good that it had been
producing at a cheaper relative price in autarky - Specialize in what you produce most efficiently
- Therefore, each country exports the good for which
its opportunity cost is lower - This is the Principle of Comparative Advantage
- Trading like this allows expanded consumption
- Technology key intervening variable
- Changes the efficiency of production
value chains = CA in action
- Specialization + Technology = Value chains
– Global spread of production systems
– Relatively new phenomenon - Required low-cost logistics (transport) and ICT (comms)
– Very little produced end-to-end in one place now - OECD on value chains:
– https://www.youtube.com/watch?v=ktx2_Dzy3tM
effects of value chains
- Dramatic surge in international trade
- Dramatic surge in global people movement
- Tremendous recasting of traditional implications, costs of conflict and war
complex interdependence
- Liberal pushback on
realism - Argues that liberalization
of global trade has
fundamental transformed
nature of IR - Four central principles
1. Societies are
interconnected in many
ways
2. States interact over
many kinds of issues
3. Military force is not
central to inter-state
relations
4. International
organizations are the
center of global politics - Doesn’t mean conflict is
over, but rather than it
best managed through
international
organizations
– For trade, GATT/WTO
National Power and the structure of foreign trade
- Examination of economic logic behind WWII
– Second World War grounded in a search for new markets
and the resources for domestic industry
– Goal at time was autarkic economic production
– Colonial system essential for maintaining metropole - i.e., new research Britain extracted $45 trillion from
India
– https://www.aljazeera.com/opinions/2018/12/1
9/how-britain-stole-45-trillion-from-india/
– With many markets closed to outside goods, possession
of markets, resources key
Foreign Trade and Post WWII Order
- Fundamental goal of Bretton Woods
System to remove economic
determinants of war
– Institutional of liberal trading order - In Europe, ‘functionalist’ logic of joint
vesting of interests in Ruhr Valley
– Conjoined interest in European Steel
and Coal Community, the EEC, then
EU - Globally set up liberal free trade system
– Global Agreement on Trade and
Tariffs (GATT), which in 1995
became the World Trade
Organization
Governing World Economy
- How do we maintain
smooth trade in
anarchy?
– We construct
rules, treaties,
international law - Trade
– Central governing
structure is World Trade
Organization - WTO’s own
‘promo’
explanation video:
https://youtu.be/V
nHtAvMLPLo - Finance
– IMF, World Bank, BIS
How do we defuse tensions? =
Institutions – the WTO
World Trade Organization – founded 1994
* Membership is restricted to nation states
* Organization run by members who agree decisions
* Day-to-day questions dealt with by representatives in Geneva
* HEAVY bias in favour of global trade liberalization
limitations of WTO
- Continuation of authority story in IR
- Issues to do with enforcing rules
- Disputes brought to Dispute Settlement Body
1) Government as filter
–all DSU complaints must be brought by a government
2) Remedies
–DSU findings simply instruct to bring rules into compliance
3) Enforcement capacity
–there is nothing other than politics of regimes to enforce
DSU decisions
4) Resource cost
–generally about US$2-3 million per case
5) Case law precedent
–there is no common law or case law tradition in DSU system
6) Role of non-governmental actors
–debate about whether access to DSU should be gov’t only - But… conflict now taken to talk shop, not
battlefield
– Legal trickery the name of the game, not gunboats - https://foreignpolicy.com/2019/12/09/trump-may-kill-wto-finally-appellate-body-worl
d-trade-organization/
Key WTO functions
- facilitate implementation and operation of Multilateral trade agreements
- administer the dispute settlement mechanism
- provide a forum for negotiations
- provide multilateral surveillance of trade policies
- cooperate with World Bank and IMF to provide global economic policy coherence
diffusing tensions (IMF vs world bank)
IMF:
* Ensures liquidity in global financial
system
* lender of last resort to prevent
balance of payment crises
* Provides statistical and policy
monitoring, advice
* Assessments taken as de facto
validation / condemnation of
policy
* Based in Washington, DC with
multinational membership
* Board of Directors voting
dominated by the US
WB:
* Several encompassed institutions,
including International Bank for
Reconstruction and Development
* Focus is on international
development
* Financing and advice
* Sets the tone for international
policy thinking on development
* Based in Washington, DC with
multinational membership
* Board of Directors voting
dominated by the US
conclusion: embedded liberalism in international trade an econ
- Ideological logic of global economy
based on liberalism of Scottish
Enlightenment - Institutions mediating and supporting
international economic system set up
by Western Powers at Bretton Woods
– Decision structures, processes
structurally tilted - Creates barriers for heterodox
thinking, contestation of
interpretations of liberalism
– Rise of linked, but independent
institutions like the Belt and Road
Initiative, Asia Infrastructure
Investment Bank, Banco do Sul
