POLITICS & ECONOMIC POLICY

POSC 182: POLITICS & ECONOMIC POLICY

 

Analytical Frameworks in IPE

 

Prof. Steven Liao January 10, 2024

 

Agenda

 

• Review • Political Economy vs. Economics • Three theoretical traditions • Our analytical framework • Summing up and Looking Ahead

 

Politics Global economy

 

What are we studying here?

 

Agenda

 

• Review • Political Economy vs. Economics • Three theoretical traditions • Our analytical framework • Summing up and Looking Ahead

 

Political Economy vs. Economics • Economics: How to increase the pie overall?

 

– Prescriptive – “Countries ought to do X economic policy.” – “X economic policy is efficient.” – Welfare

 

• Political Economics: How does the pie get divided? – Empirical – “If countries ought to do X why do some do Y?” – “X economic policy raises some incomes but lowers others.” – Explanatory

 

We must understand economics to get the politics right!

 

Questions?

 

Agenda

 

• Review • Political Economy vs. Economics • Three theoretical traditions • Our analytical framework • Summing up and Looking Ahead

 

IPE’s Three Theoretical Traditions

 

1. Mercantilism

 

2. Liberalism

 

3. Marxism

 

Mercantilism

 

Mercantilism’s Core Principles

 

• Economic wealth is a critical component of state power – Wealth, is required to accumulate power

 

• Trade should be valued for exports, but imports should be limited as much as possible – The goal is to run a positive trade balance to accumulate wealth

 

• Some forms of economic activity are more valuable than others – Manufacture > agriculture

 

Mercantilism and the State

 

• Decisions about how economic resources should be allocated are too important to be left up to the market

 

• Economic policy used to direct resources to areas of national interest

 

Liberalism

 

Adam Smith David Ricardo

 

Liberalism’s Core Principles

 

• The purpose of economic activity is to enrich individuals, not the state

 

• Countries gain from trade whether they run a trade surplus or deficit

 

• Countries become wealthier by making products they can produce at low cost and trading them for goods that would cost more to produce at home – Comparative advantage

 

Liberalism and the State • Government efforts to allocate resources will only reduce national welfare

 

• State’s role: – est. property rights – enforce those rights and contracts that transfer them

 

Marxism

 

Karl Marx

 

Marx’s Critique of Capitalism • Capitalism is characterized by two central conditions – Private ownership of the “means of production” (or capital) – Wage labor

 

• Factory owners (capitalist class) only pay workers (working class) a subsistence wage, retain profits

 

• Predicted that because capitalism divided society into classes, it would lead to a workers’ revolution that would do away with private property – Concentrated capital à falling capital returns à reduced wages – Imbalance between ability to produce goods vs. purchase goods

 

Marxism and the State

 

• Capitalist class makes decisions about how resources are allocated in a society

 

• State has no autonomous power; rather, it is an agent of the capitalist class

 

Mercantilism Liberalism Marxism

 

Key Actor The State Individuals Classes, esp. the capitalist class

 

State’s Role

 

Intervene in economy to allocate resources

 

Est. & enforce property rights to facilitate market exchange

 

Instrument of capitalist class; uses power to sustain capitalism

 

Proper Econ Policy Goal

 

Enhance power of the nation- state in the international system

 

Enhance aggregate social welfare Promote equitable distribution of wealth and income

 

Image of Int’l System

 

Conflictual: Countries compete for desirable industries; engage

 

in trade conflicts as a result.

 

Harmonious: Int’l economy offers benefits to all countries. Just need a political framework that enables

 

all to realize these.

 

Exploitative: Capitalists exploit labor w/in countries; rich

 

countries exploit poor countries in int’l economy.

 

Summary

 

Questions?

 

Agenda

 

• Review • Political Economy vs. Economics • Three theoretical traditions • Our analytical framework • Summing up and Looking Ahead

 

Our Analytical Framework

 

• Interests

 

• Institutions

 

• Interactions

 

Interests • Various actors in political economy

 

− individuals, firms, labor unions, interest groups, and governments

 

• Economic policies create distributional consequences – winners vs. losers

 

• Interests are the goals that central actors want to use foreign economic policy to achieve

 

• Interests are the product of two mechanisms – Material interests derived from actor’s position in the economy – Ideas are mental models that provide a coherent set of beliefs about cause-effect

 

relationships

 

Institutions • Political institutions establish the rules governing the political process

 

– Determine which groups are empowered to make policy decisions – Aggregate, reconcile, and transform competing interests

 

• Domestic-level example – Democratic vs. authoritarian institutions

 

• International example – Industrial countries often make decisions with little participation of developing countries

 

Domestic (State) Level International State System

 

interest group

 

interest group

 

institutions

 

interests

 

interests

 

institutions

 

Interactions

 

Domestic vs. International Systems • Domestic systems – Hierarchic – A central authority (the state) upholds law and order, enforces contracts

 

• International systems – Anarchic – No central authority overseeing the behavior of states – Commitment problem: tempting to cheat

 

The lack of a central authority in the international system makes cooperation among states difficult

 

Questions?

 

Exercise • Apply framework to 2002 US Steel Tariffs Example

 

• Pair with 1-2 neighbors and answer following questions (5 minutes) – Who were the winners and losers? – How did political institutions shape politician incentives and policy? – What was the role and impact of WTO in the case

 

• Trump’s steel tariffs?

 

Agenda

 

• Political Economy vs. Economics • Three theoretical traditions • Our analytical framework • Summing up and looking ahead

 

Summing Up

 

• Political economy vs. Economics – How pie gets divided vs. how to make pie bigger

 

• IPE’s three theoretical traditions – Mercantilism, Liberalism, Marxism

 

• Our analytical framework – interests, institutions, interactions

 

Domestic Interests on International Trade

 

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