Unit Three: Thinking Liberally - Diversity and Hegemony in IPE

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Unit Three Thinking Liberally - Diversity and
Hegemony in IPE

• Dr. Russell Williams

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• Interested in International Exchanges?
• The International Centre (IC) is holding
  information sessions on exchange programs and
  study abroad opportunities available to both
  undergraduate students.
• Wednesday September 28, 1-2pm Room A1049
• Wednesday October 5 , 3-4pm Room A1049
• Friday October 14,  12-1pm    Centre for Career
• Development, 4th Floor University Centre
• Thursday October 20,  11am-12pm Room A1045
• Wednesday October 26,  1-2pm Room A1049
• Tuesday November 1, 2-3pm Room SN2101

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Outline

• Required Reading
• Cohn, Ch. 4.
• Class Discussion Reading
• Eric Helleiner, Economic Liberalism and Its
  Critics The Past as Prologue?, Review of
  International Political Economy, 10-4 (November
  2003), pp. 685-696.
• Goldman Sachs Rules the World

1. Introduction basics of Liberal Political
   Economy
2. Normative Liberal Approaches
3. Analytical Liberal Approaches
4. Conclusions
5. Further Reading

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1) Introduction Basics of Liberal Political
Economy

• Most popular approach in IPE
• Ideological basis for
• Most international institutions
• Most states international economic policies
• The Washington Consensus
• Supported by
• MNCs
• Most academics
• However, is it a single school of thought?
• Diverse and complex may encompass too wide a
  body of thought to be a single school
• Often defined by its opposition to realism
• Residual or discursive

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• The Liberal Paradigm
• 1) Methodological Individualism
• 2) Political pluralism
• 3) Markets preferred to states
• E.g. Purpose of cooperation achieve most
  efficient use of worlds resources
• 4) Optimistic about potential for international
  cooperation
• E.g. Focus on absolute gains, not relative
  gains
• Absolute benefits of cooperation seen as large
• 5) International politics separable from
  international economics (?)
• Two kinds of liberal approaches
• Normative
• Analytical

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2) Normative Liberal Approaches

• a) Classical or Orthodox Liberalism
• (Locke, Smith, Ricardo and early economics)
• Free markets more efficient
• E.g. Smiths invisible hand - Linked
  production more efficiently to consumption
  through voluntary exchange
• Three key principles
• 1) Accumulation of profit leads to overall
  economic growth
• States job create conditions for profit

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• 2) Labor theory of value
• Price of goods directly proportional to the value
  of labor in production
• 3) Comparative advantage invisible hand of
  free trade
• Different than normal Absolute Advantage and
  specialization
• If each country produced what they were most
  efficient at, regardless of whether they were the
  most efficient producer over-all, total
  production would be higher
• Absolute gains

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• Without trade
• Wine Cloth
• Portugal (18)/29 (12)/43
• England (15)/53 (15)/53
• Total 12 Wine 6 Cloth

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• With trade specialization
• Wine Cloth
• Portugal (30)/215 (0)/40
• England (0)/50 (30)/56
• Total 15 Wine (3) 6 Cloth
• Total output higher absolute gains

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• 2) Labor theory of value
• Price of goods directly proportional to the value
  of labor in production
• 3) Comparative advantage invisible hand of
  free trade
• Different then normal Absolute Advantage and
  specialization
• If each country produced what they were most
  efficient at, regardless of whether they were the
  most efficient producer over-all, total
  production would be higher
• Absolute gains
• Powerful proof of benefits of free trade

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2) Normative Liberal Approaches

• b) Marginalism and Neo-classical economics
• Liberal economics develops as a science
• Marginalism Value of goods determined by price
  . . . Not labour
• Neoclassical Economics Combined arguments
  supportive of free market, with mathematically
  scientifically inclined school of economics.
• Assumed
• 1) Markets were perfectly competitive
• 2) Markets moved towards equilibrium
• Theoretically suggested little role for the state
  in managing the economy

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• Theoretically suggested little role for the state
  in managing the economy . . . .
• E.g. A natural and efficient division of labour
  will develop
• Only irrational governments would ignore the
  benefits of specialization

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• c) Embedded Liberalism and Keynesianism
• a.k.a. Interventionist liberalism
• Saw benefits of free markets, but argued markets
  had to be embedded in social and political
  realities . . . .
• Sources
• State desire for autonomy
• Growing popularity of Keynesian economics

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• c) Embedded Liberalism and Keynesianism
• a.k.a. Interventionist liberalism
• Saw benefits of free markets, but argued markets
  had to be embedded in social and political
  realities . . . .
• Sources
• State desire for autonomy
• Growing popularity of Keynesian economics
• Keynesianism Argued there was a need for
  macroeconomic state intervention in the economy
• States should manipulate monetary and fiscal
  policies to
• 1) Increase demand during recession
• 2) Decrease demand during overheated economic
  growth

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• Keynesianism . . . . ideas often called
• Counter-cyclical demand management
• Macroeconomic stabilization
• Justified the growth of social/welfare policies
  and was basis of Post War class compromise
• Key point Post War economic cooperation designed
  to make Keynesian policies possible
• Reduce domestic radicalism
• Reduce international conflict
• Ensure states would continue to support free
  trade
• Result Liberal free trade was embedded

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• d) Neoliberalism
• Return to the neo-classical economics and a
  rejection of Keynesianism
• Beliefs
• 1) Individual freedom goal of society
• 2) Self regulating market still most efficient
• 3) Where market failures occur, state unlikely to
  improve on the situation
• 4) Profits the basis of economic growth
• 5) Size of the state should be reduced
  Increase the scope of the market in allocating
  resources in society
• Neo-Liberals see the state as playing only a
  residual or supplementary role
• E.g. National Defense

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3) Analytical Liberal Approaches

• Much liberal analyses in IR focused on
• Problem of interstate cooperation
• Challenge of Realism
• Major groups of liberal arguments
• 1) Institutionalist approaches Focus on
  problems of interstate cooperation and
  international institutions
• 2) Interdependence approaches More clearly
  liberal- focus on domestic politics, interests,
  and institutions
• E.g. More interest in non state actors
• Both have evolved as explanations for why there
  is more economic cooperation then realists assume

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• a) Liberal Institutionalism
• E.g. Robert Keohane Neo-liberal
  institutionalism
• Attempted to subsume neo-realism - argued
• 1) States motivated by
• Anarchy and distribution of power
• Pursuit of wealth E.g. absolute gains from
  economic interdependence and free trade
• 2) Economic cooperation (liberalism) impeded by
  fear of cheating
• E.g. Prisoners Dilemma

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• United States preference DCgtCCgtDDgtCD
• Canadas preference CDgtCCgtDDgtDC
• Realism If both states are rational, fear of
  cheating and relative gains leads to
  Equilibrium at (D,D)
• Key Point Both states worse off then they could
  be . . . Not Pareto-Optimal

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• Neoliberal Institutionalists argue (C,C) is often
  equilibrium
• Why?
• 1) Iteration - repeated interaction increase
  likelihood of cooperation
• 2) Institutions reduce fear of cheating
• Surveillance transparency
• Dispute resolution

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• a) Liberal Institutionalism
• E.g. Robert Keohane Neo-liberal
  institutionalism
• Attempted to subsume neo-realism arguing
• 1) States motivated by
• Anarchy and distribution of power
• Pursuit of wealth E.g. absolute gains from
  economic interdependence and free trade
• 2) Economic cooperation (liberalism) impeded by
  fear of cheating
• E.g. Prisoners Dilemma Category of game used
  to explain possibilities of cooperation . . . .
• International institutions can increase
  possibility of pareto optimal outcomes

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• b) Regime Theory
• Key liberal response to HST explains endurance
  of international cooperation in absence of a
  hegemon
• Regime Institutional relationships that deal
  with specific issue areas in international
  politics
• E.g. The trade regime
• Create regularity in actors behavior and
  expectations
• Made up of formal institutions, decision making
  procedures, rules, principles and norms . . . .

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3) Analytical Liberal Approaches

• Other liberal theories are less institutional
  see IR in more pluralistic terms states are not
  unitary actors . . . .
• a) Interdependence Theory (Keohane and Nye)
• Increased economic integration alters
  calculations of states - creates costs for
  non-cooperation
• States not free to pursue unilateral policies
  because of complex web of relationships
• Interdependence can be hierarchical
• Interdependence ? Asymmetric interdependence ?
  Dependence
• Suggests
• Power politics not separate from economics . . .
  .
• Interdependence, once achieved, creates domestic
  pressure to keep cooperating
• Domestic politics matters . . . .
• Globalization changes nature of global politics

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• b) Republican Liberalism
• Emphasis on domestic politics
• Domestic political institutions make cooperation
  more or less likely
• E.g. Democracy makes it harder for rent seeking
  elites to lead states into irrational policies
• Examples
• Theory of Democratic Peace
• Democracies more likely to support free trade
  (Moresescik)
• By ignoring those different domestic
  institutional contexts, realists cannot explain
  why democracies get along better then
  non-democracies

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• c) Commercial Liberalism
• Economic interdependence alters individual
  preferences, which via domestic politics changes
  state preferences
• State directly transmits the desires of
  citizens/firms
• ?
  ?
• Issues are intermestic no clear distinction
  between domestic and international politics
• Suggests
• Non-state actors likely to be important
• Economic Globalization supports Neoliberalism,
  not neorealism

Interdependence More international trade and
investment -Advent of MNCs
Domestic Politics More domestic actors with
international economic interests
State Preferences Support for free trade and
global economic liberalism
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Further Reading

• Robert O. Keohane and Lisa L. Martin, The
  Promise of Institutionalist Theory,
  International Security, 20-1 (Summer 1995), pp.
  39-51.
• Robert O. Keohane and Joseph S. Nye, Power and
  Interdependence, (Scott, Foresman, 2nd ed.,
  1989), chapter 1 (pp. 3-22) and chapter 2 (pp.
  23-37).
• Either is a good example of two major varieties
  of liberal thinking . . . .

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4) Conclusions

• Strengths of Liberal Approaches
• Incorporation of domestic politics . . .
• Levels of analysis division of international/domes
  tic politics unrealistic
• Empirical . . .
• Can explain persistence of economic cooperation
• Globalization . . .
• Liberal approaches dealing directly with the
  meaning of globalization for modern IPE and
  domestic politics

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4) Conclusions

• Problems?
• Too many considerations! Not parsimonious
• Lack of focus on distributional consequences of
  international politics
• Is liberalism idealistic in this regard?
• Perspective is very ideological
• Global capitalism and free markets are inherently
  good

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For Next Time

• Unit Four Historical Materialism (a.k.a
  Marxism) and IPE
• Required Reading
• Cohn, Ch. 5.
• Class Discussion Reading
• Shaun Breslin, Power and production rethinking
  Chinas global economic role, Review of
  International Studies, Vol. 31, No. 4 (October
  2005), pp. 735-53.
• Robert W. Cox, Civil Society at the Turn of the
  Millennium Prospects for an Alternative World
  Order, Review of International Studies, 25
  (1999), pp. 3-28.