International Political Economy

Cold War IPE
3 Functions of Breton Woods Systems
– reduce trade barriers
– control capital mobility
– maintain system of fixed (mutual pegged) exchange rates
The Trilemma (“choose 2 of the following 3)”
– exchange rate stability
– domestic autonomy
– capital mobility
Breton Woods system threw out capital mobility, in order to maximize exchange rate stability and domestic autonomy
The Failure of the Breton Woods System in the 1970s
– 1973 Oil Crisis
– stagflation
– high rates of international capital movements began to undermine the dollar
“closing of the gold window” as coup de grace…
… and opened the door to competing political outlooks for IPE
Gilpen: “every economic system rests on a political foundation”
“embedded liberalism” – have methods to deal with displacement costs of economic liberalism
Prof: “Breton Woods System (IMF/EBRD-WB/GATT-WTO) were a “solution to the nightmare of the 1930s.”
– Breton Woods preperations began months after Pearl Harbor
– becaues there never was structural capital mobility, and exchange rate stability was gone, only “domestic autonomy” remained of the trilemma
– eventually, capital mobility supplanted the old exchange rate stability

Second Great Age of Capitalism
– symbolized by Reagan and Thatcher (Carter also important — tdaxp)
– extensive freeing of market forces
– importance of air traffic controller strike breaking
– triumph of economic liberalism / individualism / democracy /growth
– (but trade-off with stability)
– corresponds with information technology revolution
– clustering: technological change not randomly distributed in time or space
– capita flows dwarf ($1500 tril/day to $25 bil/day) goods-services flows

European Integration
– goal of political integration with economic integration as mechanism
European Coal and Steel Community (Franco-German in 1951)
Treaty of Rome
– 1957
– started European Economic Community / Common Market
– France, FDR, Italy, Netherlands, Belgium, Luxembourg
Single Europe Act (1986: goal that by 1992 to have one common market)
Madrid Meeting – 1989, laid grown-work for…
Maastricht Treaty
– 1991
– switch from slow to fast union
– pushed by France-Germany
– failed to establish Federal System, but strived to …
— common economic and monetary union
— try to form common foreign policy
— harmonize domestic policies in immigration, &c
1994: European Monetary Institution guides government to adopt Europ in future
– European Central Bank
– 1998
– established, takes responsibilities for monetary issues in ’99
– Germans wanted strong Euro, France wanted weak Euro
1999: Adoption of Euros, but no bills until January 1, 2002
4 Convergence Criterea for Euro
– maintain price stability (inflation)
– no gov deficit over 3%
– stable economy
– stable exchange rates
Benefits of the Euro
– maintain monetary stability
– lowering transaction costs
– encourages political integration (?)
– ecourages growth of large firms (economies of scale)
– economic growth through economic integration
Criticisms of the Euro
– focus on convergence criterea may short-change other issues (unemployment, etc)
– may be wasteful
– perhaps Euroland “not optimal currency areas,” so perhaps hurting national economies
is Euro a “symbol of European sovereignty” ?
Prof: American support for European regional integration not always in American economic interests, but supported by Washingto to help fight Communism

East Asian Integration
focus on asian/pacific integration
– but region is very diverse politically, economically, agenda, etc
– no regional hegemon or hegemonic team (such as France/Germany)
– three major powers are USA/Japan/PRC
– backlash of American efforts, some desire of “native” free trade area? (esp by Malaysia – “caucus without caucasians”)
– Japanese efforts to outsource production of goods to Pacific-Asia to Pacific-Asia (“Japan as brain, Asia-Pacific as brawn”; “japan as lead goose”)
– Japanese ambitions challenges by emergence of China
— but 3/4 of “Chinese” quarters are by international firms in China
– China joined WTO in 2001; more internationally integrated
– unlike Europe, Pacific-Asian integration entirely through economics without political union [alternative model than Europe -esp with TPMB’s “inevitable” aborption of Taiwan by China? — tdaxp]
but, would 1997 economic crisis been mitigated by regional supernational governance?
– Japan did propose Asian Monetary Fund, but shot down by US and IMF (see earlier notes)
– Prof: emphasis on Japanese agricultural protection during Uruguay Round sabotaged Japanese leadershp & economic growth
– Prof: APEC essentially abandoned as driving vehicle because Japan-USA joint opposition to reforms, different priorities, &c
– Prof: yet another problem: European physical contiguity, culturaly, politically similarity greater than in East Asian;
– Prof: Japanese firms “notoriously” less likely to share technology with international partner firms

American Economic Response
a new trilemma in American Politics?
1. Military Spending
2. Tax Cuts
3. Budget Discipline
US tired ot Japan’s “infant industry” / Europe’s “regional integration” as Europe, Japan “grew up”
In 1990s, US began “multi-track” policy which added unlitearlism, bilateralism, regionalism to multilateralism
– US switch to “results-oriented policy” whether than traditional liberal “rules-oriented policy”
– US-Canada lumber dispute, with conflicted NAFTA and WTO rulings, raises question of how to deal with overlapping trade associations

World Trade Organization
(rather biased presentation, arguable points at about 3/minute)
“killing of animals are not taken seriously” – but then how US dominated?”
human rights helped by banning?
non-democratic representation… so this discourages slow-growth strategies
“surplus capital” … but PRC is biggest destination for foreign direct investment
“richer get richer” … but, the poorest countries are those that aren’t trading
“north/south tech transfer” — but see earlier comments re PRC

Various Problems with the System
adjustment problem – (does US debtor status portent problems)
liquidity problems – there have to be cash reserves to meet deficits in the balance of payments (imagine problems if every state had own currency)
confidence problem – belief that the currency is meaningless, leads to loss of signorage
signorage = the benefits of a currency being the dominate international currency

Possible Solutions to the System
a world central bank?
monetary hegemony (Dollar-Euro-Yen trifecta?)
political-economic coordination of individual currencies / monetary policies

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