Praised for its authoritative coverage, Global Political Economy places the study of international political economy (IPE) in its broadest theoretical context—now updated to cover the continuing global economic crisis and regional relationships and impacts. This text not only helps students understand the fundamentals of how the global economy works but also encourages them to use theory to more fully grasp the connections between key issue areas like trade and development. Written by a leading IPE scholar, this text equally emphasizes theory and practice to provide a framework for analyzing current events and long-term developments in the global economy.
New to the Seventh Edition:
■ Focuses on the ongoing global economic crisis and the continuing European sovereign debt crisis, along with other regional economic issues, including their implications for relationships in the global economy.
■ Offers a fuller and updated discussion of critical perspectives like feminism and environmentalism, and includes new material differentiating between the terms neomercantilism, realism, mercantilism, and economic nationalism.
■ Updated, author-written Test Bank is provided to professors as an eResource.
Theodore H. Cohn is Professor Emeritus of Political Science at Simon Fraser University.
I have been using this wonderful text for the last few years for my upper division undergraduate course on Politics of the World Economy. This new edition brings all of the burning issues right up to date: the weight of China in the IPE, the immigration crisis in Africa and the Middle East, and the shift from multilateral to regional trade schemes. Global Political Economy gracefully weaves together theory and practice, and it strikes a perfect balance between institutions, interests and actors. I look forward to assigning this next edition.
Carol Wise, University of Southern California
With this new edition, Ted Cohn reaffirms his book’s place among the very best texts available in the field of international political economy – well organized, articulate, and certainly up to date. Students will find it both enlightening and refreshing.
Benjamin J. Cohen, University of California, Santa Barbara
Cohn continues to produce an excellent textbook; I wouldn’t think of using another. Among textbook authors, only Cohn consistently returns to the theories in each empirical chapter, driving home how the lenses we use shape our understanding of the global political economy.
Kathleen J.
Hancock, Colorado School of Mines
The seventh edition of Global Political Economy: Theory and Practice is a fully updated, comprehensive textbook that builds on the strengths of the earlier editions but has been updated with a discussion of the ongoing global economic crisis. It contains both an excellent discussion of theoretical debates as well as the main issue areas. Issues are explained in plain language for an easy understanding for university students. This book is an excellent text for courses on international political economy and the like.
Amy Verdun, University of Victoria
Global Political Economy Theory and Practice
Seventh Edition
THEODORE H. COHN
To Shirley
Seventh edition published 2016 by Routledge
711 Third Avenue, New York, NY 10017
and by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
The right of Theodore H. Cohn to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.
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First edition published by Pearson Education, Inc. 2000
Second edition published by Pearson Education, Inc. 2002
Third edition published by Pearson Education, Inc. 2004
Fourth edition published by Pearson Education, Inc. 2008
Fifth edition published by Pearson Education, Inc. 2010
Sixth edition published by Pearson Education, Inc. 2012
Library of Congress Cataloging-in-Publication Data
Names: Cohn, Theodore H., 1940- author.
Title: Global political economy : theory and practice / Theodore H. Cohn.
Description: Seventh edition. | New York, NY : Routledge, 2016.
Identifiers: LCCN 2015044173| ISBN 9781138945654 (hardback) | ISBN 9781138958746 (pbk.) | ISBN 9781315659695 (ebook)
Subjects: LCSH: International economic relations. | International trade. | International finance.
CHAPTER 2 Managing the Global Economy Since World War II: The Institutional Framework 17
Global Economic Relations Before World War II 18
The Mercantilist Period 18 • The Industrial Revolution and British Hegemony 19 •
The Decline of British Hegemony and World War I 20 • The Interwar Period 20 •
The Institutional Framework Before World War II 21
The Functions of the IMF, World Bank, and GATT 21
The KIEOs and the United Nations 22
The Postwar Economic Institutions and Changing North–South Relations 23
The IMF, World Bank, and WTO 26 • The OECD 28 •The G5, G7, G8, and G20 29
The Postwar Economic Institutions and International Development 31
The KIEOs and the Centrally Planned Economies 39
Nonstate Actors 42
The 2008 Global Financial Crisis: A Turning Point? 43 Questions 44 • Key Terms 45 • Further Reading 45 • Notes 46
PART II Theoretical Perspectives 51
CHAPTER 3 Neomercantilism 55
Basic Tenets of Neomercantilism 55
The Role of the Individual, the State, and Societal Groups 55 • The Nature and Purpose of International Economic Relations 56 • The Relationship Between Politics and Economics 56 • The Causes and Effects of Globalization 57
The Mercantilists 57
Neomercantilism and the Industrial Revolution 58
Neomercantilism in the Interwar Period 59
Neomercantilism After World War II 60
The Revival of Neomercantilist IPE 60
Hegemonic Stability Theory and U.S. Hegemony 61
What Is Hegemony? 62 • What Are the Strategies and Motives of Hegemonic States? 62 • Is Hegemony Necessary and/or Sufficient to Produce an Open, Stable Economic System? 64 • What Is the Status of U.S. Hegemony? 65
Neomercantilism and North–South Relations 67
Present-Day Neomercantilism 68
Critique of the Neomercantilist Perspective 70 Questions 71 • Key Terms 71 • Further Reading 71 • Notes 72
CHAPTER 4 Liberalism 77
Basic Tenets of the Liberal Perspective 77
The Role of the Individual, the State, and Societal Groups 78 • The Nature and Purpose of International Economic Relations 78 • The Relationship Between Politics and Economics 79 • The Causes and Effects of Globalization 79
The Development of Liberal IPE: Adam Smith and David Ricardo 80
The Influence of John Maynard Keynes 81
Liberalism in the Postwar Period 83
A Return to Orthodox Liberalism 83
Liberalism and Institutions 85
Interdependence Theory 85 • The Liberal Approach to Cooperation 86 • Regime Theory 88
Liberalism, Global Governance, and Regimes 89
Liberalism and Domestic–International Interactions 90
Liberalism and North–South Relations 92
Orthodox Liberals and North–South Relations 93 • Interventionist Liberals and North–South Relations 93
The Role of the Individual, the State, and Societal Groups 103 • The Nature and Purpose of International Economic Relations 104 • The Relationship Between Politics and Economics 104 • The Causes and Effects of Globalization 105
Early Forms of Historical Materialism 106
Karl Marx 106 • Vladimir Lenin: The Study of Imperialism 107 • Dependency Theory 108
Whither the Historical Materialist Perspective? 110
World-Systems Theory 111 • Neo-Gramscian Analysis 112
Constructivism 114
Feminism 116
Environmentalism 118
Critique of the Critical Perspectives 121 Questions 122 • Key Terms 123 • Further Reading 123 • Notes 124
PART III The Issue Areas 129
CHAPTER 6 International Monetary Relations 131
The Balance of Payments 132
Government Response to a Balance-of-Payments Deficit 135
Adjustment Measures 136 • Financing 136 • Adjustment, Financing, and the Theoretical Perspectives 139
The Functions and Valuation of Money 139
International Monetary Relations Before Bretton Woods 140
The Classical Gold Standard (1870s to 1914) 140 • The Interwar Period (1918–1944) 141
The Formation of the Bretton Woods Monetary Regime 142
The International Monetary Fund 142
The Functioning of the Bretton Woods Monetary Regime 145
The Central Role of the U.S. Dollar 146 • A Shift Toward Multilateralism 148 •
The Demise of the Bretton Woods Monetary Regime 151
The Regime of Floating (or Flexible) Exchange Rates 151
The Plaza–Louvre Accords 153
Alternatives to the Current Monetary Regime 153
European Monetary Relations 154
What Is the Future of the U.S. Dollar as the Key Currency? 157
The Dollar Versus the Yen 158 • The Dollar Versus the Euro 159 • The Dollar Versus the Renminbi 161 • The Future of the Dollar: Other Possible Scenarios 162
Unexpected Changes in the Global Economy 174 • Irresponsible Behavior of Lenders 175 • Irresponsible Behavior of Borrowers 175 • The South’s Dependence on the North 177
The Foreign Debt Regime 178
The IMF, World Bank, and Transition Economies 181 • The Paris and London Clubs 184
Strategies to Deal with the 1980s Debt Crisis 185
Emergency Measures and Involuntary Lending: 1982–1985 186
• The Baker Plan: 1986–1988 187 • The Brady Plan: 1989–1997 188
• Initiatives for the Poorest LDCs 189 • Assessing the Effectiveness of the Debt Strategies 189
Transition Economies and Foreign Debt 190
The IMF, the World Bank, and the Debt Crisis 192
The 1990s Asian Financial Crisis 194
Causes of the Asian Financial Crisis and Strategies to Deal with It 195
• The International Financial Architecture 196
The 2008 Global Financial Crisis 198
The European Debt Crisis 202
The European Debt Crisis and the Changing Relationship Between the EU and IMF 204
Principles of the Global Trade Regime 222 Trade Liberalization 223 • Nondiscrimination 225 • Reciprocity 225 • Safeguards 228 • Development 229
Formation of the WTO 229
The WTO and the Global Trade Regime 232
The Transition Economies and Global Trade Relations 234
The South and Global Trade Issues 236 1940s to Early 1960s: Limited LDC Involvement 237 • 1960s to Early 1970s: Growing Pressures for Special Treatment 237 • 1970s to 1980: Increased North–South Confrontation 238 • 1980s to 1995: More LDC Participation in GATT 238 • 1995 to the Present: LDC Disillusionment with the Uruguay Round and Demands in the Doha Round 239 • The Emerging Economies: China, India, and Brazil 240
Civil Society and Global Trade Relations 242
Trade and the Environment 244
Considering IPE Theory and Practice 246 Questions 247 • Key Terms 248 • Further Reading 248 • Notes 249
CHAPTER 9
Regionalism and the Global Trade Regime 255
Regionalism and the IPE Theoretical Perspectives 257
Regionalism and Globalization 258
A Historical Overview of RTAs 258
The First Wave of Regionalism 259 • The Second Wave of Regionalism 259
Explanations for the Rise of Regional Integration 261
The GATT/WTO and RTAs 263 Trade Diversion 264 • Trade Creation 264 • GATT Article 24 and RTAs 265 • The Effectiveness of GATT Article 24 265 • Special Treatment for LDCs 266
The European Union 268
The Deepening of European Integration 269 • The Widening of European Integration 270 • Theoretical Perspectives and the EU 272
The North American Free Trade Agreement 275
The Formation of NAFTA 275 • NAFTA as a Free Trade Agreement 276
IPE Perspectives and the East Asian Experience 355 • The Asian Financial Crisis 357
The Revival of Orthodox Liberalism 359
Structural Adjustment and the Theoretical Perspectives 360 • Structural Adjustment and Questions About Orthodox Liberalism 361 • Structural Adjustment and SubSaharan Africa 361 • Structural Adjustment and LDC Women 362
Another Shift in Development Strategy? 363
The Late 1980s to 1994 364 • The Wolfensohn Period: 1995 to 2005 366 • 2005 to the Present 368 • China’s Development Strategy 369 • A Diversity of Views on the UN’s Development Goals 370
CHAPTER 12 Current Trends in the Global Political Economy 384
Globalization 384
Globalization and Triadization 385 • Globalization and the State 386 • Globalization, Inequality, and Poverty 387 • Globalization and Democracy 389 • Globalization and Civil Society 390 • Globalization and Neglected IPE Issues: Energy, the Environment, and Migration 391
North–North Relations 395
The Current State of U.S. Hegemony 395 • Is There a Candidate to Replace the United States as Global Hegemon? 397 • The Role of International Institutions 399
North–South Relations 401
Changing Concepts of Development 402 • Is There a “Best” Development Strategy? 403
A Final Word on IPE Theory and Practice 405 Notes 406
Glossary 410
Index 420
PREFACE
The seventh edition of this book emphasizes the challenge China is posing to the West in most areas of the global political economy, despite the country’s economic slowdown and the need to reorient its economy. The book also examines how the focal point of the 2008 global financial crisis has shifted from the United States to the European Union (EU). Currently the EU is being buffeted by a sovereign debt crisis in Greece, a migration crisis from the Middle East and Africa, and anti-EU sentiments in Britain and some other member states. Scholars and policy-makers recognize the need for policies to limit the detrimental effects of financial crises and to prevent future crises. However, there are striking differences among analysts as to what policies should be adopted to prevent financial crises and hasten recovery from them. For example, some analysts refer to credit booms in which there is a rapid expansion of lending as a major cause of financial crises. However, a 2012 study of the International Monetary Fund (IMF) found that only about one-third of credit booms resulted in crises. A number of the booms produced long-term economic benefits. Whereas some policy-makers view more regulation of banking activities as essential to prevent financial crises, others argue that over-regulation can limit financial innovation. As for dealing with financial crises, some policy-makers emphasize austerity while others call for government stimulus. Noted economic scholars have also disagreed about policy priorities in response to financial crises. Whereas Niall Ferguson and Kenneth Rogoff believed that the United States had to control its deficits and foreign debt during the 2008 crisis, Paul Krugman argued that government stimulus was a more important priority.
The lack of consensus on how to deal with financial crises also applies to many other problems in the global political economy. Where we stand on issues often depends on where we sit, and our theoretical views can have a major effect on our policy prescriptions. Thus, this book puts considerable emphasis on the role of theory and the relationship between theory and practice. Theory helps us identify a degree of order in the complex world of international political economy (IPE), and enables us to go beyond description and engage in causal explanations and modest predictions. Our theoretical perspective also affects how we perceive and interpret issues. By applying theory to all the major issue areas in IPE, this book will help instructors draw connections between theory and practice for students. The book also focuses on three major themes: globalization, North–North relations (among developed countries), and North–South relations (among developed and developing countries). Despite the importance of globalization, it is not leading to a world society or world government. Indeed, considerable space is devoted to regional blocs and organizations such as the EU and the North American Free Trade Agreement (NAFTA), and Chapter 9 focuses specifically on regional trade agreements. Furthermore, the book discusses
the interconnections between economic and security issues, and domestic and international issues.
NEW TO THIS EDITION
Some of the significant revisions in this edition include the following:
■ I now use the term “neomercantilism” rather than “realism” to describe one of the three main IPE theoretical perspectives; and Chapter 3 discusses the similarities and differences between neomercantilism, realism, and economic nationalism. Chapters 3 and 4 include new sections on present-day neomercantilism and liberalism. Chapter 5 on the critical perspectives has extensive revisions.
■ The data and discussion for the balance of payments are completely updated in Chapter 6 on monetary relations. Chapter 6 also updates the discussion of European monetary problems, and examines changes in the role of the U.S. dollar vis-à-vis the euro and the Chinese renminbi.
■ To reflect the importance of financial crises, I have moved the subject from Chapter 11 in the sixth edition to Chapter 7 in this edition. The chapter devotes more space to the 2008 global financial crisis and the European sovereign debt crisis, and to the effect of these crises on relations between the developed countries (DCs) and the emerging economies.
■ Chapter 8 examines the reasons why the Doha Round of multilateral trade negotiations has still not been concluded, and discusses the implications of this stalemate for the global trade regime.
■ The discussion of trade regionalism in Chapter 9 is updated to include current challenges confronting the EU and the NAFTA, and the negotiations for a Trans-Pacific Partnership (TPP) agreement. The discussion of regional integration theory is also expanded and updated.
■ Chapter 10 on multinational corporations (MNCs) devotes much more attention to the increasing role of emerging economies such as China, India, and Brazil as both host and home countries for MNCs.
■ Chapter 11 on international development substantially updates the discussion of development strategies, and examines how China’s policies toward less-developed countries differ from those of the United States, the IMF, and the World Bank.
■ Chapter 12 and several other chapters discuss issues that require more attention in the study of IPE, including energy, the environment, and migration.
This edition provides a fully updated Test Bank for instructors. All of the data in the text, and the Questions, Key Terms, and Further Reading sections at the end of the chapters are also updated. In sum, the seventh edition of this text is fully updated and contains many revisions that reflect the changes occurring in the global political economy and in the academic study of IPE.
FEATURES
This book has a number of distinguishing features that have been consistently maintained through the seven editions:
■ Emphasis on the interaction between theory and practice. Students understand theory better when they see its practical applications, and theory gives meaning to the substantive IPE issues. Chapters 3–5 discuss the IPE theoretical perspectives, and Chapters 6–11 on substantive issues (monetary relations, financial crises, global and regional trade, multinational corporations, and international development) conclude with a boxed item on “Considering IPE Theory and Practice.”
■ Attention to the role of formal and informal institutions. With globalization, there is a greater need for global governance in IPE. However, it is becoming more difficult to manage the global economy, and the IMF, World Bank, and World Trade Organization (WTO) are subject to numerous criticisms. Chapter 2 introduces the institutional framework for managing the global economy. Emphasis is also given to the role of private actors such as multinational corporations, nongovernmental organizations, and civil society groups in global economic governance.
■ Attention to the historical evolution of issues. Some historical background is essential for understanding contemporary IPE issues. For example, knowing the history of the informal General Agreement on Tariffs and Trade (GATT) helps explain why the major trading economies replaced it with the formal WTO in 1995; and knowing the history of the 1980s foreign debt crisis helps explain why some developing countries are still plagued with foreign debt problems.
■ Examination of North–South issues between developed and developing countries. Chapter 11 deals with international development, and the discussion of North–North and North–South issues is integrated throughout the book. This reflects the fact that most developing countries are increasingly integrated in the capitalist global economy, and that some Southern states such as China, India, and Brazil are becoming major economic actors.
■ Focus on regional as well as global relations in IPE. Chapter 9 examines the proliferation of regional trade agreements, which is a highly controversial issue in IPE today; and regionalism is also discussed in other chapters.
■ Examination of domestic–international interactions in IPE. One effect of globalization is the blurring of boundaries between international and domestic relations.
■ Discussion of the broad range of IPE economic concepts, making them as clear as possible for students new to the subject, without oversimplifying them. To make the concepts more “user-friendly,” examples are often provided.
■ Inclusion of a number of study and research aids to make the complexities of IPE understandable to students. At the end of the chapters are sections focusing on Questions, Key Terms, and Further Reading. All of the key terms are defined in a Glossary at the end of the book.
ACKNOWLEDGMENTS
Iam grateful for the comments, advice, and support of a number of individuals in writing and revising this book. First, I want to thank the late Professor Mark Zacher for the discussions, advice, and friendship we shared over the years. Michael Webb of the University of Victoria also gave me extensive feedback and advice for most of the editions of the book; and Benjamin Cohen of the University of California–Santa Barbara provided some helpful advice and comments. The emphasis of this IPE text on international institutions and governance owes a great deal to the interest I developed in the subject years ago when the late Professor Harold K. Jacobson of the University of Michigan was my Ph.D. supervisor. Furthermore, I want to thank John Craig, the Dean of Arts and Social Sciences at Simon Fraser University, for a research grant which was helpful in completing this edition. I also want to thank Peter McLaren for his assistance in preparing the tables and figures for this edition; and Joel Fox, Paul Tubb, Malcolm Toms, and Pierre Dansereau for their assistance.
The competent editorial staff at Routledge have given me considerable support and encouragement in revising this book for the seventh edition. I especially want to thank Jennifer Knerr, Ze’ev Sudry, and Carrie Bell for their time and assistance. I also appreciate the support of the editorial staff at Pearson Longman for earlier editions of this book.
I am also indebted to the following external reviewers, whose helpful comments contributed to the various editions of this book: Katherine Barbieri, University of South Carolina; Sherry L. Bennett, Rice University; Vicki Birchfield, Georgia Institute of Technology; Kurt Burch, University of Delaware; Jeffrey Cason, Middlebury College; Robert A. Daley, Albertson College; Vincent Ferraro, Mount Holyoke College; David N. Gibbs, University of Arizona; Vicki L. Golich, California State University–San Marcos; Robert Griffiths, University of North Carolina at Greensboro; Beverly G. Hawk, University of Alabama at Birmingham; Michael J. Hiscox, University of California–San Diego; Tobias Hoffman, College of William and Mary; Matthias Kaelberer, University of Northern Iowa; Quan Li, Florida State University; Waltraud Q. Morales, University of Central Florida; Thomas Oatley, University of North Carolina at Chapel Hill; James Quirk, Catholic University of America; Howard Richards, Earlham College; David E. Spiro, University of Arizona; Kenneth P. Thomas, University of Missouri–St. Louis; John Tuman, University of Nevada, Las Vegas; Robert S. Walters, University of Pittsburgh; Ming Wan, George Mason University; and Jin Zeng, Florida International University. In addition, I want to thank four anonymous reviewers of the sixth edition of my book. Thanks are also due to several colleagues at Simon Fraser University, including James Busumtwi-Sam, Anil Hira, Stephen McBride, David Laycock, Sandra MacLean, Tsuyoshi Kawasaki, and Michael Howlett.
My acknowledgments would not be complete without mentioning the important role of my students over the years in asking insightful questions,
raising important issues, and providing feedback on the aspects of IPE they found clear or confusing. My sons Daniel and Frank have given me assistance and advice, especially on issues related to the work they both do in international development. Finally, I am dedicating this book to my wife Shirley, for her caring advice, support, and encouragement. She makes it all seem so much more meaningful and worthwhile.
Theodore H. Cohn
ACRONYMS AND ABBREVIATIONS
ACP: African, Caribbean, and Pacific
ADB: Asian Development Bank
ADDs: antidumping duties
AFL: American Federation of Labor
AFTA: ASEAN Free Trade Area
AIDS: acquired immunodeficiency syndrome
AIIB: Asian Infrastructure Investment Bank
ASEAN: Association of Southeast Asian Nations
BIS: Bank for International Settlements
BITs: bilateral investment treaties
BRIC: Brazil, Russia, India, and China
BRICS: Brazil, Russia, India, China, and South Africa
CDF: Comprehensive Development Framework
CDOs: collateralized debt obligations
CEECs: Central and Eastern European countries
CET: common external tariff
CFCs: chlorofluorocarbons
CFIUS: Committee on Foreign Investment in the United States
CIA: Central Intelligence Agency
CIO: Congress of Industrial Organizations
CMEA: Council for Mutual Economic Assistance
CPEs: centrally planned economies
CRTA: Committee on Regional Trade Agreements
CSO: civil society organization
CSR: corporate social responsibility
CTE: Committee on Trade and Environment
CU: customs union
CUSFTA: Canada–U.S. Free Trade Agreement
CVDs: countervailing duties
DAC: Development Assistance Committee
DC: developed country
DDA: Doha Development Agenda
DISC: Domestic International Sales Corporation
EBRD: European Bank for Reconstruction and Development
EC: European Community
ECB: European Central Bank
ECSC: European Coal and Steel Community
EFTA: European Free Trade Association
EMS: European Monetary System
EMU: Economic and Monetary Union
ERM: exchange-rate mechanism
EU: European Union
Euratom: European Atomic Energy
Community
FDI: foreign direct investment
FDIC: Federal Deposit Insurance Corporation
FIRA: Foreign Investment Review Agency
FSU: former Soviet Union
FTA: free trade area
G5: Group of Five
G7: Group of Seven
G8: Group of Eight
G10: Group of 10
G20: Group of 20
G24: Group of 24
G77: Group of 77
GAB: General Arrangements to Borrow
GATS: General Agreement on Trade in Services
GATT: General Agreement on Tariffs and Trade
GDP: gross domestic product
GHG: greenhouse gas
GNI: gross national income
GNP: gross national product
GPE: global political economy
GSP: generalized system of preferences
HDI: human development index
HIPC: heavily indebted poor countries
HIV: human immunodeficiency virus
IBRD: International Bank for Reconstruction and Development (World Bank)
ICSID: International Center for Settlement of Investment Disputes
IDA: International Development Association
IDB: Inter-American Development Bank
IFC: International Finance Corporation
IHDI: inequality-adjusted human development index
IMF: International Monetary Fund
IO: international organization
IPE: international political economy
IR: international relations
ISDS: investor-state dispute settlement
ISI: import substitution industrialization
ITO: International Trade Organization
ITT: International Telephone and Telegraph Corporation
KIEOs: keystone international economic organizations
LAFTA: Latin American Free Trade Association
LDC: less-developed country
LIC: low-income country
LLDC: least developed country
M&As: mergers and acquisitions
MAI: Multilateral Agreement on Investment
MBS: mortgage-backed securities
MDG: Millennium Development Goals
MDRI: Multilateral Debt Relief Initiative
Mercosur: Southern Common Market Treaty
MFA: Multi-Fiber Arrangement
MFN: most favored nation
MIC: middle-income country
MIGA: Multilateral Investment Guarantee Agency
MNC: multinational corporation
MTNs: multilateral trade negotiations
NAFTA: North American Free Trade Agreement
NATO: North Atlantic Treaty Organization
NEM: New Economic Mechanism
NEP: National Energy Program
NGO: nongovernmental organization
NIE: newly industrializing economy
NIEO: New International Economic Order
NTB: nontariff barrier
OBM: obsolescing bargain model
ODA: official development assistance
ODF: official development finance
OECD: Organization for Economic Cooperation and Development
OEEC: Organization for European Economic Cooperation
OPEC: Organization of Petroleum
Exporting Countries
PPP: purchasing power parity
PRB: Population Reference Bureau
PRC: People’s Republic of China
PRSPs: Poverty Reduction Strategy Papers
PTA: preferential trade agreement
R&D: research and development
RCEP: Regional Comprehensive
Economic Partnership
RMB: renminbi
RTA: regional trade agreement
RTAA: Reciprocal Trade Agreements
Act
SAL: structural adjustment loan
SAP: structural adjustment program
SDRs: special drawing rights
SDT: special and differential treatment
SEA: Single European Act
SEC: Securities and Exchange Commission
SWF: sovereign wealth fund
TAN: transnational advocacy network
TOA: Treaty of Asunción
TPP: Trans-Pacific Partnership
TRIMs: Trade-Related Investment Measures
TRIPs: Trade-Related Intellectual Property Rights
TTIP: Transatlantic Trade and Investment Partnership
UN: United Nations
UNCTAD: United Nations Conference on Trade and Development
UNCTC: United Nations Center on Transnational Corporations
UNDP: United Nations Development Program
UNICEF: United Nations Children’s Fund
ACRONYMS AND ABBREVIATIONS
USTR: U.S. Trade Representative
VERs: voluntary export restraints
WEF: World Economic Forum
WTO: World Trade Organization
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Introduction and Overview
The global political economy has a major effect on people, societies, and states today. A country’s economic growth depends on its productivity, and production has become increasingly global. For example, an automobile manufactured by a major U.S. auto company may be assembled in Britain with inputs from all over Europe, designs produced in the United States, and stages of processing in various locations. Some Japanese auto companies depend on lower-wage Asian countries for much of their auto parts production. With the globalization of production, we have become more dependent on multinational corporations (MNCs) for our employment. Many Americans work for MNCs, and U.S. MNCs locate some of their production in other countries to take advantage of lower wages and taxes. The global political economy also affects us as consumers. The United States exports fruit and vegetables to Canada, and a drought in California affects prices for Canadians as well as Americans. Furthermore, much of the clothing we buy is produced in lower-wage countries in Asia. In sum, the increase of global interdependence is affecting our most important economic activities, including production, employment, and consumption. Politics and economics are intertwined because of the importance of these economic activities to individuals, governments, and states. Thus, international political economy (IPE) is an important area of study. Chapter 1 introduces the subject of IPE, the IPE theoretical perspectives, and the main themes of this book. Chapter 2 provides an overview of global economic relations before World War II and the postwar institutional framework developed to manage the global economy. For ease of reference, all terms defined in the glossary are in bold print when they are first described in detail.
Introduction
The developed countries (DCs) of the North, particularly the West— the United States and the European Union (EU)—have been the predominant economic powers in the global political economy. However, cracks have appeared in this Western predominance and some economic power has been shifting toward Asia, especially China. The 2008 global financial crisis which began in the United States and the current EU sovereign debt crisis are dramatic signposts of this shift in economic power. We begin this introductory chapter with a brief discussion of these crises, because they are affecting all the substantive issue areas we examine in this book. This book also examines the challenge China is posing to the West in most areas of the global political economy, despite the country’s economic slowdown and the need to reorient its economy.
Financial crises go back to at least the thirteenth century, but in the mid1980s central banks seemed to become better at limiting deep recessions, and many economists believed that the U.S. Federal Reserve had learned how to “tame” the business cycle. Thus, the 25-year period from the mid-1980s to about 2006 was called the Great Moderation. 1 Since business cycle downturns seemed less of a threat, financial innovations and deregulation encouraged investors to overextend themselves, and U.S. mortgage lenders provided subprime mortgages to people with low incomes or poor credit ratings who did not qualify for regular mortgages at market interest rates. The increased demand for houses led to a building boom, which resulted in reduced U.S. housing prices by mid-2006. Mortgages were also coming up for renewal at higher interest rates, and many subprime borrowers had to default on their loans because they owed more than the value of their houses. A number of large U.S. banks and financial institutions had repackaged and sold the subprime mortgages as mortgage-backed securities to investors around the world. One of these institutions was Lehman Brothers, the fourth largest U.S. investment
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