THE INTERNATIONAL POLITICAL ECONOMY

FOUR ACADEMIC AREAS OF IPEThe International Trade System – a “market” systemThe International Monetary System – a “market” systemMultinational Corporations – generally independentEconomic Development – usually focused on the less developed states

Your textbook emphasizes globalization. Many perceive economic globalization as the globalizing factor.

POWER IN THE WORLD ECONOMYMARKET POWER

THE POWER OF THE MARKETTHE POWER TO STRONGLY INFLUENCE THE MARKET –

THEREFORE, A STRUCTURAL MARKET FAILURE.

POLITICAL POWERSTATESMNCs

NO LONGER MILITARY POWER?COLONIALISMMILITARY INTERVENTION

THE MARKET (I)

DEMAND IS A FUNCTION OF ALL THE FACTORS THAT CAUSE SOMEONE TO WANT OR NEED SOMETHING.

SUPPLY IS A FUNCTION OF ALL THE FACTORS THAT ARE NECESSARY TO PRIODUCE A GOOD OR A SERVICE.

THEORECTICALLY, SUPPLY AND DEMAND ARE THE INDEPENDENT FUNCTIONS THAT CAUSE THE DEPENDENT VARIABLES OF PRICE IN THE MARKET AND THE AMOUNT OF THE SERVICE OR GOOD PRODUCED.

IN THE CONTEXT OF ALL MARKETS, THE SYSTEM PROVIDES THE MOST EFFICIENT ALLOCATION OF SCARE RESOURCES.

THE MARKET (II)FOR THAT EFFICIENCY TO FULLY EXIST, ALL THE FACTORS OF PRODUCTION (EVERYTHING THAT IS NECESSARY TO PRIODUCE A GOOD OR A SERVICE) MUST BE FREE TO MOVE TO WHERE IT CAN BE THE MOST EFFICIENT.

NOT JUST TRADED GOODS AND SERVICES, BUT PEOPLE, MONEY, IDEAS, TECHNOLOGY, NATURAL RESOURCES, ENTREPREUNALSHIP, INDUSTRIES, ETC.

THE EFFICIENT MARKET REQUIRES THUS ECONOMIC GLOBALIZATION.

FACTORS OF PRODUCTION

Land - natural resources above and below the surface

Capital - the human created means of production: factories, farms, machinery, infrastructure

Human Capital - the work force’s capability, dependent on education and training

Financial Capital - the funds provided by lenders to businesses and states to develop land, capital, and human capital.

Entrepreneurship - the ability to assemble resources including innovations, finance and business acumen in an effort to transform innovations into economic goods. It involves inventiveness, initiative, risk taking.

Technology - The way we do things and the ability to improve the way we do things.

THE MARKET (III)

BUT?AT WHAT COST COMES THIS EFFICIENCY?

IS EFFICIENCY, AS SOVEREIGNTY FOR SOME, ALWAYS THE ABSOLUTE GOOD?

MOREOVER, WHAT IF THE ASSUMPTIONS NECESSARY FOR THE MARKET TO WORK THEORECTICALLY ARE NOT PRESENT?

AREAS WHERE THE MARKET FAILS

MICROECONOMIC ISSUES:

STRUCTURAL MARKET FAILURE – POWER OVER THE MARKET

RESOURCE IMMOBILITY

PUBLIC GOODS – GOODS AND SERVICES CONSUMED COLLECTIVELY

EXTERNALITIES

MACROECONOMIC ISSUES:

MACROECONOMIC INSTABILITY

ECONOMIC GROWTH

OATLEY’S TWO “ABSTRACT” QUESTIONSPOLITICAL, ECONOMIC, AND SOCIETAL DECISIONS AFFECT THE ALLOCATION OF THE SCARCE RESOURCES.

THERE WILL BE THOSE WHO BENEFIT MORE THAN OTHERS.

RESOURCES ARE FINITE AND THERE WILL BE COMPETING DEMANDS FOR THOSE RESOURCES.

ALLOCATION WILL BE BY POLITICAL, ECONOMIC, OR SOCIETAL INSTITUTIONS AND PROCESSES.

MOREOVER, THERE ARE CONSEQUENCES:OVERALL SOCIETAL WELLBEINGDISTRIBUTION OF THE BENEFITS

ADDITIONALLYWE HAVE OTHER VALUES, WHICH MAY NOT ARISE OUT OF THE MARKET’S EFFORT TO EFFICIENTLY ALLOCATE SCARE RESOURCES. FOR THESE WE OFTEN NEED TO CAUSE A TRADE-OFF.Fair Income DistributionFull EmploymentControlled InflationAdequate StabilityEconomic FreedomSecurity against Economic RiskSocial well-beingIndividual well-beingHigh Living StandardsHigh Human DevelopmentConcern for OthersAchieved Non-Economic Goals – Other social and

religious goals

THE ECONOMIC INSTRUMENT OF POWERMost governments have a limited ability to use their economic instrument of power, unlike the political/diplomatic and military instruments, which they control.

Domestic and International economies are market-based

Economic power provides a basis for creating other instruments of power.

The primary use of the economic instrument of power by a state is through negotiations.

Other uses are -- Tariffs and quotas, Domestic regulations, Economic sanctions, Economic incentives, & Foreign economic aid