International Political Economy
What have we learned in the course? correct answers It is often thought of as a
subfield of IR
In this course we have defined it broadly, not simply to incorporate work derived from
International Relations scholarship of the past four decades (IPE is often thought of as a
subfield of IR), but also to consider the deeper intellectual legacy of political economists
stretching back to the eighteenth century.
We have thought in broad terms about how to approach the field of IPE ('upper case
IPE') and consider various 'optics' through which the subject matter ('lower case ipe')
can be viewed and from which quite distinctive sub-types of IPE can emerge.
The history of global political orders
The course is designed to give a historical, theoretical and thematic backdrop to aid
understanding of current affairs.
We examine ideas from both economic theory and political science/international
relations and note that such ideas (e.g. liberalism, economic nationalism) are
themselves forces at work within the global political economy as well as tools for
understanding and explanation.
Describe briefly the different contributions of Susan Strange. Matthew Watson, and Ha-
Joon Chang correct answers Strange's States and Markets (especially the prologue
and the opening chapter) follow through the logic of her seminal 1970 piece on the
required reading, while setting up a very distinctive way of looking at IPE in terms of four
types of 'structural power'. Meanwhile Watson (especially in the introduction and
chapter 2) helps us to think deeply about a core concept that much IPE pays scant
attention to: the market, while Chang asks some deep questions about whether
Economics (and standard ways of thinking about the economy) are fit for purpose when
it comes to studying the dynamics of economic systems.
Ha-Joon Chang correct answers 23 Things they don't tell you about capitalism
What does Ha-Joon Chang mainly criticise? correct answers Free-market ideology +
active economic citizenship
Without or active economic citizenship, we will always be the victims of people who
have greater ability to make decisions, who tell us that things happen because they
have to and therefore that there is nothing we can do to alter them, however unpleasant
and unjust they may appear.
,List Ha-Joon Chang's 23 things correct answers 1) There is no such thing as a free
market
2) Companies should NOT be run in the interest of their owners
3) Most people in rich countries are paid more than they should be
4) The washing machine has changed the world more than the internet has
5) Assume the worst about people and you get the worst
6) Greater macroeconomic stability has NOT made the world economy more stable
7) Free-market policies rarely make poor countries rich
8) Capital has a nationality
9) We do not live in a post-industrial age
10) The US does not have the highest living standard in the world
11) Africa is not destined for underdevelopment
12) Governments can pick winners
13) Making rich people richer doesn't make the rest of us richer
14) US managers are over-priced
15) People in poor countries are more entrepreneurial than people in rich countries
16) We are not smart enough to leave things to the market
17) More education in itself is not going to make a country richer
18) What is good for General Motors is not necessarily good for the United States
19) Despite the fall of communism, we are still living in planned economies
20) Equality of opportunity may not be fair
21) Big government makes people more open to change
22) Financial markets need to become less, not more, efficient
23) Good economic policy does not require good economists
Explain 1) There is no such thing as a free market - what they tell you correct answers
Markets need to be free. When the government interferes to dictate what market
participants can or cannot do, resources cannot flow to their most efficient use. If people
cannot do the things they find most profitable, they lose the incentive to invest and
innovate.
Thus, if the government puts a cap on house rents, landlords lose the incentive to
maintain their properties or build new ones. People must be left "free to choose", as the
tile of free-market visionary Milton Freidman's famous book goes
Explain 1) There is no such thing as a free market - what they don't tell you correct
answers The free market doesn't exist. Every market has some rules and boundaries
that restrict freedom of choice. A market looks free only because we so unconditionally
accept its underlying restrictions that we fail to see them. How "free" a market is cannot
be objectively defined. It is a political definition.
There are restrictions on:
What can be trades
Wo can participate in markets
Conditions of trade
,Price regulations
There are a huge range of restrictions on what can be traded - eg bans on narcotic
drugs, human organs, electoral votes, government jobs and legal decisions.
There are also restrictions on who can participate in markets. Child labor regulation now
bans the entry of children into the labour market. Licences are required for professions
etc.
Conditions of trade are specified too. Eg one can demand a full refund for a product one
don't like, even if it isn't faulty
Price regulations. - rent controls, minimum wages etc
So, when free-market economists say that a certain regulation should not be introduced
because it would restrict the "freedom" of a certain market, they are merely expressing
a political opinion that they reject the rights that are to be defended by the proposed
law.
Their ideological cloak is to pretend that their politics is not really political, but rather is
an objective economic truth, while other people's politics IS political. However, they are
as politically motivated as their opponents.
Explain 2) Companies should NOT be run in the interest of their owners - what they tell
you correct answers Shareholders own companies. Therefore, companies should be
run in their interests. It is not simply a moral argument. THe shareholders are not
guaranteed any fixed pauments, unlike the employees (who have fixed wages), the
suppliers (who are paid specific prices), the lending banks (who get paod fixed interest
rates), and other involved in the business. Shareholders' incomes vart according to the
company's performance, giving them the gratest incentive to ensure the company
performs well. If the company goes bankrupt, the shareholders lose everything,
whereas other "stakeholders" get at least something. THus, shareholders bear the risk
that others involved in the company do not, incentivizing them to maximize comany
performance. When you run a company for the shareholders, its profut (what is left after
making all fixed payments) is macimized, which also maximized its social contribution
Explain 2) Companies should NOT be run in the interest of their owners - what they tell
don't you correct answers Shareholders often care the least about the long-term future
of the company (unless they are so big that they cannot really sell their shares without
seriously disrupting the business).
Consequently, shareholders prefer corporate strategies that maximize short-term
profits, usually at the cost of long-term investments.
Running the company for the shareholders often reduces its long-term growth potential.
, Limited liability means that investors in the company will lose only what they have
invested (their "shares"), should it go bank-rup. Limited liability, is what has made
modern capitalism possible.
During the late nineteenth and early twentieth centuries limited liability hugely
accelerated capital accumulation and tecnological progress.
1980: invention of the principle of shareholder value maximization.
Professional managers should be rewarded according to the amount they can give to
shareholders. In order to achieve this, first profits need to be maximized by ruthless
cutting costs - wage bills, investments, inventories, middle-level maangers, and so on.
In order to encourage managers to behave in this way, the proportion of their
compensation packages that stock options account for needs to be increased, so that
they identify more with the interests of the shareholders
Explain 3) Most people in rich countries are paid more than they should be - what they
tell you correct answers In a market economy, people are reqarded according to their
productivity. Blleding-heart liberals may find it difficult to accept that a Swede gets paod
fifty tomes what an Indian gets paid for the same job, but that is a reflection of their
relative productivities. Attempts to reduce these differences artificially - for example, by
introducing minimum wage legislation in India - lead only to unjust and inefficient
rewarding of individual taletns and efforts. Only a free labour market can reward people
efficiently and justly
Explain 3) Most people in rich countries are paid more than they should be - what they
don't tell you correct answers The wage gaps between rich and poor countries exist not
mainly because of differences in individual productivity but mainly because of
immigration control.
If there were free migration, most workers in rich countries would be replaced by
workers from poor countries. In other words, wages are largely politically determined.
So the poor countries are not poor because of their poor people (they can out-compete
their counterparts).
They are poor because of their rich people, who can't out-compete their counterparts.
The rich countries rich people have high productivities because of the historically
inherited collective institutions. They live in economies that have better tecnologies,
better organized firms, better institutions and better physical infrastructure - all things
that are in large part products of collective actions taken over generations.
Example Swedish driver Sven is paid fifty times more than the Indian driver Ram - is
that really because Sven is fifty times more productive than Ram?
- No, the main reason that Sven is paid fifty times more than Rams is protectionism -
Swedish workers are protected from competition from the workers of India and other
poor countries through immigration control.
