JUNIATA COLLEGE

Accounting, Business and Economics Department

International Political Economy

EB 381 01

Professor Brad Andrew / Office: 814-641-3378
BAC 205D / E-Mail:
Office Hours: MWF 10-11 AM
TuTh 2:30-3:30 PM
and by appointment / Home Page: http://faculty.juniata.edu/andrew/

Description:

We purportedly live in an age of globalization. Countless commentators endlessly repeat this mantra. Most of those repetitions are imprecise about what the word means and overstate how much it changes our lives. This course aims to restore precision, end exaggeration, and identify the key problems that the global economy poses for policymakers, whether in the US, developing countries, or in international organizations. It builds on your training in economics by integrating political theory, allowing you to better analyze and understand current policy issues.

The first goal of this class is to acquaint you with important topics and theoretical approaches in “international political economy.” Second, the course provides you with the kind of foundation you will need in to analyze public policy issues (even apparently domestic ones) in this “globalizing” world. Third, because this course requires so much from you in terms of active participation, you’ll experience a level of involvement in this class that likely exceeds any you’ve encountered before. This can be quite intellectually stimulating, because you will have the opportunity to help shape the direction of class discussion. YOU ARE AS MUCH RESPONSIBLE FOR THE SUCCESS OF THIS COURSE AS I AM!!! Finally, at the end of the course, it gives you a chance to practice the skills of policy analysis in your paper and on the take-home final exam.

As the course proceeds, its main emphasis goes from the theoretical to the practical. We begin by sampling several contemporary views of political economy, spotlighting two that will reappear often in the course. Then, the rest of the course covers what I consider the most important issue areas in international political economy--trade (the longest section), finance, the organization of production, culture and economic development.

Requirements and Evaluation:

This will be a seminar. As such, it is essential that all reading be completed and contemplated prior to the class meeting. Attendance is required and classroom participation (quality, not just quantity) accounts for 30% of your final grade. One short paper will count for 10%. Your performance leading class once counts for 10% of your grade. One eight page paper counts for 20%. A comprehensive take-home final exam counts for the final 30%.

Readings:

The following required books can be found at the book store or at online bookstores such as Half.Com and Amazon.Com:

Paul Krugman, Pop Internationalism (MIT Press, 1996);

Dani Rodrik, Has Globalization Gone Too Far? (IIE, 1997);

Joseph Stiglitz, Globalization and Its Discontents (W. W. Norton, 2002).

Lori Wallach and Patrick Woodall, Who’s Trade Organization? (The New Press, 2004);

Randy Charles Epping, A Beginner’s Guide to the World Economy (Vintage, 2001).

There are also items on reserve, handouts and online readings.

Academic Honesty & Integrity Policy:

Ethics are an integral feature of all personal, social, and professional considerations. Thinking ethically and accepting responsibility for one’s actions are essential to personal development. Juniata’s graduates are committed to their intellectual, ethical, professional, and social development throughout life. Students are expected to understand and comply with Juniata’s Academic Honesty & Integrity Policy.


SCHEDULE

* = On reserve ** = Handout *** = On p-drive under Andrew

1/16 Quick Overview of Important Framing Concepts

Kenneth Waltz, “Evaluating Theories,” American Political Science Review, 12/97.***

Excerpt from Milton Friedman’s Essays on Positive Economics.**

E Roy Weintraub, “Neoclassical Economics”, available at

http://www.econlib.org/library/Enc/NeoclassicalEconomics.html

Hal Varian, Intermediate Microeconomics, excerpts.**

William McEachern, Microeconomics: A Contemporary Introduction, excerpts.**

These readings introduce us to two important questions that help frame issues that we will address during the next few weeks—how do economists theorize about the world, and what qualifies as a theory? Regarding the first question, economists assume that people are rational, meaning that they do what is in their best interest at the time. People buy the products that give them the most satisfaction per dollar spent, firms try to maximize profits, and under particular conditions these choices will lead to the best possible outcome for all parties involved in the transaction. In other words, no rearranging of the products or purchases can make anyone else better off without making someone else worse off. This is what economists call Pareto efficiency, and it is the goal economists seek with any policy choice. The second question, what is a theory?, is important for our discussions throughout the rest of the semester. Waltz, while commenting on a book review, argues for his particular interpretation of what a good theory should accomplish. Milton Friedman offers a different view, though there is some overlap. In general, theories of political economy fit under the category of “positive political economy” because they seek to explain the world using a few key variables. Public Choice theory is outlined in the McEachern reading.

1.  Economists argue that a theory’s main goal is to predict outcomes. How does this differ from Waltz’s view? In what ways does Waltz’s definition of a theory fit with the typical economist’s view, as espoused by Friedman?

2.  What are Waltz’s general views on the balance of power? What tacit assumptions underlie his arguments?

3.  What are the tacit assumptions that economists make that, were they not true, would undermine the prediction of a Pareto efficient outcome?

4.  How do economists apply the microeconomic principles to government decisions? Is this argument compelling?

1/18 Background on Key Issues of Globalization

“Globalisation and Its Critics, The Economist, 9/29/01.**

I. Two Approaches to International Political Economy

1/23 The New Institutional Economics and Public Choice

Douglass North, “Institutions and Economic Growth: A Historical Introduction,”

article 3 in Frieden and Lake.*

Paul Collier, “Economic Causes of Civil Conflict and Their Implications,” World

Bank, June 2000. Available at http://www.worldbank.org/research/conflict/papers/civilconflict.pdf

Austin Merrill, “Citizen Soldiers”, The New Republic,October 17, 2005,Pg. 14. (available on Lexis-Nexis).

Bruno Frey, “The Public Choice View of International Political Economy,” in

Vaubel and Willett, eds., The Political Economy of International Organizations: A Public Choice Approach.*

These readings introduce two closely related schools of political economy. Both begin from a premise that political actors are narrowly self-interested maximizers of some combination of power and personal wealth (the mix depends on the circumstances and the author). In a fundamental way, it is the economist’s approach to explaining politics, and builds upon the topics studied in the last class. Public choice theories (ala James Buchanan’s work on rent-seeking) apply this to analyses of voting and public finance, with most practitioners writing about the US. Frey focuses on international applications of public choice. Collier’s paper is shaped by long experience in Africa, and present issues that arise when government can’t form and function. North and the New Institutionalists use similar assumptions to raise issues that Adam Smith sometimes glossed over. They do not assume the presence of an effective government to channel everyone’s self-interest into beneficial directions; rather, for them the greater or lesser effectiveness of institutions is a major reason for wealth inequality among different societies and different times.

1.  North has stated that “Third world countries are poor because the institutional constraints define a set of payoffs to political/economic activity that do not encourage productive activity.” What does he mean by this statement? What evidence does he provide? Is it plausible?

2.  What, for Collier, explains rebellion and civil war? Does his explanation seem right for cases you are familiar with—say, the Civil War or the Bosnian conflict? What does his analysis suggest about Iraq’s future? How would you relate Collier’s analyis to North’s analysis?

3.  What, according to Frey, does the sober eye of public choice analysis add to our understanding of IPE? Can you think of any other examples where such an approach sheds light? In what areas is this mode of analysis inadequate?

1/25-1/30 Power, States, and Exchange

Samuel Bowles and Herbert Gintis, “The Revenge of Homo Economicus:

Contested Exchange and the Revival of Political Economy,” Journal of Economic Perspectives, 7:1 (Winter 1993), pp. 83-89, propositions 1, 2, and 5 from pp. 89-98, and 98-end.*** (be ready to look up some words for this article)

Susan Strange, “An International Political Economy Perspective,” ch. 4 from

Dunning, ed., Governments, Globalization, and International Business

(1997)*

Robert Keohane, “Realism, Neorealism and the Study of World Politics,” pp. 1-16 from Keohane, ed., Neorealism and its Critics (1986).*

Kenneth Waltz, “Globalization and Governance,” PS, Dec. 1999 available at http://www.mtholyoke.edu/acad/intrel/walglob.htm

Bowles and Gintis try to combine the microeconomic-behavior approach of the theorists we read last week with a focus on inequality. Economists assume that competitive markets only serve an allocative function, yet in fact they also serve an enforcement function. No economist has ever attempted to argue that it also serves this role efficiently, as they have with the allocative function (remember Pareto efficiency and the other concepts that we studied last week). This generates intriguing issues for IPE, even assuming that trade is free. Strange is an eclectic analyst: her work focuses on inequality and on multinational corporations. Her distinction between relational and structural power is an important one. The remaining readings owe something to a realist/neorealist view of international relations, in which state power is the ultimate end in an anarchic world, and governments are assumed to dedicate themselves to the pursuit of this power in its various forms. The view can be traced back to Machiavelli and Thucydides, but Waltz is the biggest name in neo-realist theory today. This focus on power also makes one aware of its unequal distribution in the world.

  1. Bowles and Gintis suggest (100), without much elaboration, that contested exchange and short-side power ought to be important concepts in thinking about international economic relations. Based on their argument, can you think of examples?
  2. What are the key elements of Waltzian neo-realism? How does it differ from realism?
  3. How does Waltz respond to those who claim that globalization is making the nation-state less and less relevant? What evidence does he offer?
  4. For Strange, what is the difference between structural and relational power? Doesn’t relational power somehow also determine structural power? What are her examples of structural power?

2/1 Economic Sanctions: Power and Trade in Practice

Albert O. Hirschman, National Power and the Structure of Foreign Trade (1945),

read pp. 3-12, skim 13-23, read 23-34.*

Daniel Drezner, “The Hidden Hand of Coercion”, working paper.***

These readings focus on the economic exercise of power via the asymmetrical interdependence that trade relations typically create. The first reading is from Albert Hirschman’s first book, shaped by his experiences in World War II. Its central insight is that a gain from trade can be seen as that which is in the power of your trading partner to take away. This is the thread that connects the Hirschman analysis with the sanctions literature, and also the previously discussed neorealist literature. Although the connection between trade and power is usually an implicit one (allowing us to forget it exists), economic sanctions remind us of it. Drezner’s reading challenges the claims of the most important research project about sanctions in the last two decades, Huffbauer et. al.’s Economic Sanctions Reconsidered.

  1. Can you think of more recent parallels to Hirschman’s description of trade and power between large and small countries? Are his arguments plausible?
  2. Pick a sanction you consider to have been effective and one that you think was ineffective. Explain how the sanctions and their effects differed.
  3. Assume that countries follow through on sanctions. Speculate on how effective they will be in general.
  4. What kind of sanctions do you believe the U.S. should use, and under what conditions?

2/6-2/8 The International System (note assignment on next page)

Dani Rodrik, “How Far Will International Economic Integration Go?”, Journal of Economic Perspectives 14:1 (Winter 2000).***

Stephen D. Krasner, “State Power and the Structure of International Trade,” in Frieden and Lake, article 1.*

Stephen Brooks and William Wohlforth, “American Primacy in Perspective,” and

Stanley Hoffman, “Clash of Globalizations,” both from Foreign Affairs July/Aug 2002. (Both are available on ProQuest)

While the last readings focused on economic power in bilateral relations, these consider the international system as a whole. While alike on this point, they differ on where they start. Rodrik begins from open-economy macroeconomics to discuss varieties of world order and their connection with national economic policies. Rodrik has been an outspoken critic of WTO policies because of their impact on developing countries. Beginning from politics, Krasner’s classic article argues that free trade requires a hegemonic power. Hoffman criticizes the results of this hegemony for poorer countries. Also using politics as the point of departure, Brooks and Wohlforth measure the present hegemony of the USA and discuss what this implies for world order, including world economic relations.

Let me offer a few words to help contextualize this section. “Realism” broadly means that expanding national state power is the objective of any government, and governments are assumed to dedicate themselves to the pursuit of this power in its various forms. “Neorealism” is realism applied to the system as a whole, drawing conclusions about international alignments from the pattern of relative power capabilities among individual states. Security is assumed to be the ultimate reason for pursuing power, rather than power for its own sake. In its strongest form it today predicts (e.g. in the works of Kenneth Waltz) that our current unipolar system (US hegemony) is unstable and will soon give way, via “balancing” behavior by other states, to something else.

Questions for section 1—due February 8 in class

  1. Rodrik’s framework and Krasner’s framework may be in conflict because a hegemon is required for free trade to exist. Is that correct? If it is explain why. If it is not explain why and think of a situation in which they would not be in conflict. (short answer)
  2. How do Brooks and Wohlforth connect the realm of international security to international economic relations? Are you persuaded by their argument? (short answer)
  3. In a sense, Hoffman wants globalization to take account various objections to the current international system. Why, for him, is it in the US’s—or the world’s—interest to do so? Do you think it likely to happen? (short answer)
  4. Realists and Neo-realists (like Waltz and Krasner) are state-driven theories. Does the existence of international organizations make their theories less relevant? Why/why not? Or if your answer is maybe, under what circumstances are they invalidated?
  5. In a world where terrorism is an increasing threat, is a hegemon’s relative power reduced? Why/why not?
  6. Some of the theorists of IPE that we’ve studied assume that patterns and behaviors within international political economy and international relations repeat themselves, making theories like Neo-realism and Public Choice possible. This assumption implies that the people in power don’t matter that much because they all pursue similar goals. Do you accept that conclusion? Why/why not?
  7. Is it dangerous for an administration to be in power, make the assumptions that Neo-realists do and follow through on those assumptions in your foreign policy? Or is it more dangerous to not make those assumptions and not follow through on them? Explain your answer. Referring to historical examples would strengthen your answer.

II. Trade