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Lecture 1
International Political Economy
• Economics
= The study of the 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.
• There is no pure economy that doesn’t have some form of government engaged in it
IPE
• Studies the politics of the flows of production, distribution and consumption across
national borders.
• It is not only national governments that matter but also foreign governments,
international institutions and foreign businesses, more now than ever!
• There are few economic flows that are not global in some nature.
Political Economy
• Winners & Losers:
o The state makes decisions that have heterogeneous (different) consequences
across society.
o Some benefit, some lose out (i.e. taxation, trade policy, social programs, just
about everything)
o Sometimes general welfare is increased, sometimes small groups win at the
expense of general welfare
• Distributional consequences of policy matter!
o Who wins & who loses can tell us about which decisions are made and why
they were made?
o Also, why some policies are so hard to adopt (climate) who wins and loses
materially
o Instead of assuming that the government is trying to improve general welfare
(as many economists do).
in most cases, politicians are acting on behalf of their own interests not
general welfare
Political Economy
• Less about ideas and more about who gets what, when and where (material)
• Though some may approach the field with a focus on the role of ideas.
• Do ideas matter?
o Yes
o But maybe not so much according to political economists
Do Ideas Matter?
• Probably
o But it’s harder to theorize or quantify
• Do people act against their own interests because of ideas?
o Certainly… might be sth we can't explain
o Citizens and politicians also exhibit tendencies to act rationally
• Did most Post-WW2 leaders adopt Keynesian economics bc they read Keynes or bc it
was politically favourable?
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o In times of economic recession, it is good for most people that the government
pours a lot of money in the economy.
o It became popular bc the policy spoke to the people who could vote
o See Modern Monetary Theory today… gained attraction among those who
want more government spending
• Did Communism rise bc it was an attractive idea or bc the political circumstances
make it politically convenient at the time?
o Inequality during Marxist times
o Maybe the idea wasn’t the cause, but political leaders found utility in them
• Difficult questions to answer but often scholars will give credit to ideas when
incentives offer a more compelling answer.
o Keep reminding yourself of this tension here and in your other classes
• In reference to the Eurozone debt crisis: “We all know what to do, but we don’t know
how to get re-elected once we have done it” – Jean-Claude Juncker
politics plays a key role, political constraints
IPE
• The consequences of international flows:
o Trade (goods and services)
o Capital (finance, currency)
o Immigration (people, labour)
o Environment (pollutants)
o Violence (terrorism, civil conflict, peace)
o And others…
• Understanding the consequences of these policies helps us understand the outcome
Brief Overview
• The global trade regime & trade agreements:
• How domestic governments and politicians distort the market
• Why are some development strategies adopted and others not?
• What power do corporations have over our lives and politics?
• Do economic sanctions work? If so, when?
• Why do countries have different currencies? And how does that impact my life and $$
$?
• What determines what a Euro is worth and why does it matter?
• What determines who gets foreign aid?
• The politics of the “Great Recession” and its aftermath. Maybe a bit on the Pandemic
Economy
• What are the benefits of sovereign borrowing and who has access to foreign capital?
• Trying to explain Brexit, Trump, Rise of Populism
• The political economy constraints on climate change action
A Note on Social Science
• While we take a specific political economy approach in our classroom
• The approach may lead us astray in some cases
• Social science is hard (way harder than rocket science!)
• You should always question what the book says and what your professors say.
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Final Exam
• 50% MC randomized on several dimensions
• 50% short answer/essay questions
• He will put what he thinks is important on the final exam
• Book & lectures
Approaches to IPE
• The old schools…
o Mercantilist School (mercantilist)
o Liberal School (liberalism)
o Marxist School (Marxism)
• He doesn’t do “-isms’
o A single paradigm doesn’t explain a natural science like physics
o (Wikipedia: “theory of everything”)
o A single paradigm certainly can't explain the global economy and political
order
o In practice, your professors conduct mid-level theory or focus on a specific
topic
Believe it or not, we don’t debate liberalism vs. realism anymore
focus on topics, outcomes
o He is an “empiricist”. He tries not to hold assumptions and tries to base his
conclusions on available scientific evidence and compelling theory.
follow the facts
we can follow two competing ideas
• Instead a modern approach
o Interests & institutions
Mercantilism
• Similar to IR’s Realism
o Focuses on the state, rather than subnational interests
o Assumption: states use economic policy to increase power
• National power comes from economic power
o Exports bring money (gold) in and increases power; imports send money out
and decreases power by strengthening other states
Was once partly true, not any more…
o Exports vary in their importance
Manufactured goods are superior (add a lot of value compared to
natural resources)
• Implication: The economy should be controlled to gain power
o Elements in Trump administration
o Should is not really scientific normative
Liberalism
• Countries and individuals gain from trade by exploiting comparative advantages
o Focuses mainly on individual welfare
• No harm in engaging in trade
o “A rising tide lifts all boats”
o All trade is good, not just a positive balance (i.e. exports > imports)
combatting with mercantilism
• Implication: The role of the state should be limited
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Marxism
• Not the policy prescriptions but the theory underlying them
• Two central factors (players)
o Capital (rich people) (means of production) and Wage Labour (poor people)
• Natural tendency of capital concentration
o Competition efficiency small elite
o Leads to unequal society
o Yada, yada, something, ‘waves hands’ … revolution
• The state exists to protect capital (not labour)
• Internationally: exploitation of the South by the North
• Implication: Capitalism is bad for the distribution of wealth we should adopt other
forms of political representation (based on labour)
Three Approaches
• Each offers a way to view the politics and the world economy
o The important actors
o The relationship between them (conflictual, cooperative)
o And each proposes distinct economic policy recommendations
• Each is limited bc of their rigid frameworks & dependence on questionable
assumptions
o And normative views on how the world ‘should’ work
A Modern Approach
• Interest and Institutions
• More inclusive and adaptive
• The interaction between societal interests and the political institutions that funnels
them to policy.
• We use assumptions about interests and institutions to build a model that helps us
explain an outcome.
o Different models for each outcome
Interests
• What drives your political behaviour?
• Material (Societal)
o What increases your welfare?
• Political (Institutional)
o What will keep me in political office?
• Do you win or lose from a certain policy or proposed policy?
• Material interests are largely shaped by endowments (characteristics):
policy preferences
o Skill level
Factor of production:
Land, Labour (skilled & unskilled), Capital
o Industry
What kind of industries employ you (Sector)
Ex. Import competing, export-oriented, unemployed?
o “Tell me where you work, and I’ll tell you your political preferences”
• The interests that matter differ depending on the question we are trying to answer
not just capital or labour or sector
• Sometimes interests are hard to identify…
