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Lecture notes Global Political Economy 2018
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Lecture notes for the course Global Political Economy (GPE) academic year given at the Vrije Universiteit (VU)
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GPE HCs 2018#1 – Global Political Economy, introduction
29-10-2018
What is international political economy?
• International political economy / global political economy = object of study
Ø International political economy = primacy of states / interstate
Ø Global political economy = global system in which states are no longer only
actors > also private (transnational) actors (era of globalization)
• Defining the substance of the field
Ø Political economy is about:
§ The study of the relationship (mutual constitution) of production and
power
§ Interaction and interrelations between states and markets
§ Between how we organize our economy – how we produce, distribute
and consume goods and services / allocate scarce resources – and our
system of political rule
Ø IPE studies the interaction of ‘the economic’ and ‘the political’ within the
international / global system.
Rival perspectives in IPE
• (Economic) Liberalism
Ø efficient markets
Ø competition firms; co-operation states
• Mercantilism (realism)
Ø State power
Ø National wealth & security
Ø State competition
• Structuralism (Marxism)
Ø Dynamics of capitalist system
Ø Class (conflict), inequality
4 levels of analysis and 4 structures
• 4 inter-related levels
Ø Global
§ how important global factors create constraints and opportunities
Ø Interstate
§ relative balance between political economy power
Ø State-social
§ lobby groups
Ø Individual
• 4 inter-related structures
Ø Production and trade
Ø Money and finance
,Ø Knowledge and technology
Ø Security
,#2 – Perspectives I: Liberalism
02-11-2018
Capitalism: some people own the means of production, and some don’t. Having capital
means you can actually get more capital, which does not benefit the people without it.
What does a state do within a system of capitalism?
• Sets the rules for the markets, ex. prevent monopolies
Ø The state needs markets for tax revenues
• Law and order
• Creates trust in the system by backing-up the value of money.
Adam Smith
• The invisible hand
• Opposed dominant ideas associated with mercantilism: nation or state was best
served to develop the economy or to create wealth
Ø Smith: should not be state or action that creates wealth it is about individual
freedom within the marketplace. That’s the best way to ensure efficiency and
growth for all people. He believed in the cooperative side of the people.
Society as a whole was best served with rational choice, acting in one’s own
self-interest: the invisible hand.
• Influenced by his own experiences
Ø Capitalism replacing feudalism
Core ideas of (orthodox) economic liberalism (OEL):
• People are guided by reason and progress
Ø By engaging each other constructively, liberals believe in progress.
Ø Mercantilists believe in the Hobbesian nature of the people
• Liberty from the state: laissez-faire
Ø Freedom from the state
Ø Laissez-faire: let it be. Liberty or freedom from the state
Ø Was also morally the right thing to do
• (Rational) individual choice
Ø Self-interest would drive individuals to make rational choices. This would best
serve their won desires and interests.
• Self-interest serves society’s interest, promotes the collective good and maximizes
welfare
Ø This will not lead to anarchy, it serves the society
Ø Smith: self-interest is not a bad thing
• Market efficiency: efficiency emerges when the market is free when the market is
free to determine the price of things (=price mechanism)
Ø No one should intervene with the price mechanism, not even the state. It
should leave the market to itself
Ø Does this always work?
, Adam Smith (1723-1790)
• The Wealth of Nations
• The “invisible hand” and the cooperative, constructive side of human nature
David Ricardo (1772-1823)
• The “Law of Comparative Advantage” and the benefits of trade
Ø Produce those goods that you are good at, this provides the highest relative
gains
Ø Free trade will lead to a universal society
§ Very liberal idea of progress
John Stuart Mill (1723-1806)
• Need for market-correcting (selective) role of the state
Ø Market could create particular problems that could lead to problems,
therefore the state should sometimes still intervene.
• Wrote during the times that the hardships of the industrial revolution became
pressing
Neoclassical economics (20th century)
• The dominance of the liberal perspective in modern economics (with the help of new
mathematical models): “The market is always right”
Ø Mathematical models: predict behaviour in markets
• People and forms are rational utility maximizers; complete information
Ø Markets built upon complete information
• Market equilibrium through laws of supply and demand
Neoliberalism (political ideology)
Roots in economics: champions of ultra-liberal capitalism
• Friedrich von Hayek (1899-1992)
Ø The Road to Serfdom
§ Explores growing influence of the states in the context where
Keynesian policy was used by states.
Ø Minimal state intervention, maximum freedom of capital, anti-welfare
system, anti-trade unions
§ Presented for him a big threat as what he saw as fascism, so the role
of the state should be limited. So, he proposed these policy’s.
• Milton Friedman (1912-2006)
Ø Monetarism: budget politics, managing money supply to control inflation,
encourage people to save
§ The state should balance its budgets, restricting state budget
Ø The market as the (neutral) preserver of freedom
§ He saw the market as the only trusted entity.
Neoliberalism as a political project
• First generation politicians: Pinochet, Reagan, Thatcher
• Core of the project:
Ø Freedom of enterprise, anti-unionism
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