Boughton: From Suez to Tequila

Boughton, JM. 2000. From Suez to Tequila: IMF as Crisis Manager. The Economic Journal 110: 273-291.

This paper explores the changing role of the IMF. It was initially created, in 1944, to provide resources in a short-term fashion to shore up economies.

"What brought Mexico to seek the assistance of the Fund was a formerly latent balance of payments problem that swiftly became manifest in response to a financial crisis, which shall be defined here as a sudden and catastrophic loss of net international assets that makes continuation of the existing policy regime impossible" (275).

The Fund was originally created in a world of limited capital mobility. That world clearly no longer exists in the same way, as capital movement is much less restricted.

"During the first decade of the IMF's life as a financial institution, what little lending the Fund did was aimed at helping countries establish currency convertibility for current account transactions at fixed exchange rate parities" (279).

In 1956, Egypt required the Fund's first major allotment of capital. This occurred because the Egyptian government nationalized the Suez canal, and French, British and Israeli governments attacked. Each of these four countries approached the Fund.

"The capital accounts as an independent force became a more general issue in the early 1960s, after most industrial countries had reestablished convertibility for current account transactions. When countries with the most advanced financial systems began dismantling capital controls, the Fund treated it as a welcome development and thus began to distance the institution further from the view that had prevailed at Bretton Woods" (281). This loosening of capital controls caused tension, eventually leading to the collapse of the Gold Pool, the institution of developed countries that attempted to keep the price of gold at 35$ an ounce.

After the collapse of the Gold Standard, in 1971 with Nixon separating the dollar from gold and in 1973 with the exchange market crisis, the world of international finance changed drastically.

"The major turning point both for the international financial system and for the crisis-management role of the IMF came in 1982" (284). Banks stopped lending.

The IMF response was large, and paved the way for IMF responses throughout the 1990s.

Feldstein: Refocusing the IMF

Feldstein, M. 1998. Refocusing the IMF. Foreign Affairs 77, no. 2: 20-33.

"The IMF's recent emphasis on imposing major structural and institutional reforms as opposed to focusing on balance-of-payments adjustments will have adverse consequences in both the short term and the more distant future. The IMF should stick to its traditional task of helping countries cope with temporary shortages of foreign exchange and with more sustained trade deficits" (20).

"Today's emphasis on structural and institutional reforms has not always been part of IMF programs. The IMF was founded in 1945 to help operate a system of fixed exchange rates, in which all currencies were pegged to the dollar, in turn fixed with respect to gold, that experts then considered necessary to encourage international trade. Although that system succeeded temporarily, differences in inflation between countries forced many to alter their currency values. When the fixed system collapsed completely in 1971, the IMF was forced to find a new raison d'être" (20).

Their new motivation can be seen as building from the Mexico financial crisis. Mexico indicated that it would be unable to satisfy its international commitments. If they were to default on this loan, that had the potential to push many US banks into insolvency, as it would have wiped out a substantial chunk of credit. The US provided a bridge loan to Mexico so that they would be able to pay back these loans eventually. Many of the loans that were about to be defaulted upon were restructured. This was not only accomplished in Mexico, but in Central and South America more generally.

In order to meet these restructured loans, countries embarked on a process of increasing exports and decreasing imports in order to earn foreign exchange. The IMF was a part of overseeing that restructuring of these economies towards a goal of accruing more international capital was proceeding smoothly.

The next step in IMF development involved country restructuring after the fall of the Soviet Union. The IMF brought much experience to countries that had little experience with market based economic decisions. It also did not hurt that their advice came with substantial financial incentives to adopt these market orientated policies.

"The IMF is now acting in Southeast Asia and Korea in much the same way that it did in Eastern Europe and the former Soviet Union: insisting on fundamental changes in economic and institutional structures as a condition for receiving IMF funds. It is doing so even though the situations of the Asian countries are very different from that of the former Soviet Union and Eastern Europe. In addition, the IMF is applying its traditional mix of fiscal policies...and credit tightening...that were successful in Latin America" (22).

There is then an exploration of the SE Asian currency crisis:

"The Southeast Asian currency collapse that began in Thailand was an inevitable consequence of persistent large current account deficits and of the misguided attempt of Thailand, Indonesia, Malaysia, and the Philippines to maintain fixed exchange rates relative to the dollar" (22).

Thailand had a current account deficit that was quite large, and a currency pegged to the dollar. This meant that Thailand had to attract much foreign capital to service its debt. However, there were also pressures that kept investors coming back: the government ran a budget surplus, the population saved heavily. This was an untenable situation, especially with the baht tied to the dollar: when the yen fell relative to the dollar, Japanese investments in Thailand were discounted substantively. This caused a massive selling off of the baht. "At that point the IMF stepped in with a multibillion dollar rescue plan" (23).

This spread to the Philippines, Malaysia and Indonesia, as all had fixed currencies and current account deficits.

The author believes that a similar role to the one played by the IMF in Latin America would have been appropriate, but that the Fund went well beyond that measure. The structural adjustment programs were extensive and excessively detailed.

"In deciding whether to insist on any particular reform, the IMF should ask three questions: Is this reform really needed to restore the country's access to international capital markets? Is this a technical matter that does not interfere unnecessarily with the proper jurisdiction of a sovereign government? If the policies to be changed are also practiced in the major industrial economies of Europe, would the IMF think it appropriate to force similar changes in those countries if they were subject to a fund program? (27).

Das: Trade and Global Integration

Das, Dilip. Trade and Global Integration. CSGR Working Paper No. 120/30.

"This paper focuses on the post-war process of creation of a global trading system and integration of world trade. As the former came into being, multilateral trade liberalization became an on-going feature of the global economy facilitating international trade, consequently importance of international trade in the global economy increased dramatically...Although the industrial economies were the primary beneficiaries of the multilateral trade liberalization in the past, for the developing economies trade, particularly trade in manufacturing goods, went on increasingly monotonically. The kaleidoscope of global trading system turned several times and international trade has enormously expanded over the preceding half century, which in turn contributed substantially to global integration through trade, albeit in a selective manner" (2).

This paper has two distinct foci: firstly, it is concerned with exploring how a global trading regime with liberal characteristics developed over time. Secondly, it is interested in the different shape that this global trade regime took as it evolved: how has the structure of international trade shifted over time?

The International Trade Organization was formed shortly after WWII, with the goal of merging with the other two Bretton Woods organizations to help orchestrate international economic interaction. The ITO fell short (US congress hesitation and fear of loss of control), and thus the General Agreement on Tariffs and Trade (GATT) was instituted instead. This was instituted in 1948. The Uruguay Round (1986-94) helped create the World Trade Organization, which incorporated the GATT along with other more specialized international agreements (on agriculture, textiles, etc.).

"Like the United Nations and the World Bank, [the WTO] became a key institution of global governance. Its essential functions are: (i) administering WTO trade agreements, (ii) providing a forum for multilateral trade negotiations, (iii) handling trade disputes between members, (iv) monitoring national trade policies, (v) providing technical assistance and training for developing countries, and (vi) handling economic co-operation with other international organizations" (7).

"Four trends can be clearly identified in the global trading system during the preceding half century: (i) highly uneven pace of liberalization of markets in goods and services in both developing and industrial economies, (ii) increasing differentiation in treatment for different levels of developing economies by the global trading system, (iii) a growing number of regional trading agreements...among both developing and industrial economies, and (iv) expanding scope and strength of[regional trade agreements]" (10).

"Measured in constant...dollars, the ratio of global trade in goods and services to global GDP increased from 8 percent in 1950 to 29.5% in 2000" (10).

Economic growth occurs because of trade liberalization for the following: "Essentially there are there sources of economic growth, namely, growth in inputs, improvement in efficiency of resource allocation and innovation" (11).

The author explores empirical claims that there is little evidence of globalization in trade. This is accomplished using the gravity model of trade. However, the proxy used within that model to measure the ease of trade between different parties is physical proximity. Globalization trends have imposed technologies that increasingly make those proximate relationships less impacting, and thus the gravity model is brought into question.

Nayyar: Globalisation, History and Development

Nayyar, D. 2006. Globalisation, history and development: a tale of two centuries. CPES.

"This paper situates globalization in historical perspective to analyze its implications for development. IT sketches a picture of globalization during the late nineteenth and twentieth centuries. A comparison of these two epochs reveals striking parallels, unexpected similarities and important differences. It shows that globalization did not lead to rapid growth and economic convergence in the world, either then or now. Indeed, growth slowed down, and income levels diverged, while the gap between the industrialized and developing countries widened, in both epochs. The story of globalization, it turns out, does not conform to the fairy tale about convergence and development" (137).

The author notes that the word globalization is used in both a descriptive and a normative sense: one is more passively attempting to explore a deepening global integration and the other is prescribing a development method. It can be explained as increasingly intense economic transactions across national borders occurring through one of the following: international trade, investment or finance. "More precisely, it can be defined as a process associated with increasing economic openness, growing economic interdependence and deepening economic integration in the world economy" (137).

The history of globalization before 1914 is explored. Trade openness increased dramatically in the years leading up to the Great War, in fact, more substantively than global economic output. However, it was not the case that this openness was entirely voluntary: many countries were coerced to join the international trading regime through gunboat diplomacy.

In the latter half of the 20th century, international openness to economic exchange also experienced rapid growth. This is true when explored through the metric of international trade or international finance/investment.

The two periods are compared: "There are four similarities that are worth noting: the absence or the dismantling of barriers to international economic transactions; the development of enabling technologies; emerging forms of industrial organization; and political hegemony or dominance" (144). "There are, also, important differences between the two phases of globalization. It is important to highlight four such differences: in trade flows, in investment flows, in financial flows and most important, perhaps, in labour flows, across national boundaries" (146).

Walter: Understanding Financial Globalization

Walter, A. 2002. Understanding Financial Globalization. Institute of Defense & Strategic Studies.

"This paper makes three main arguments. First, it is implausible to claim that contemporary levels of financial integration remain low by historical standards...Second, I argue that it is now reasonably well-established that financial globalization is not (or at least not yet) the great 'leveling force' implied in some of the earlier literature, where it was seen as an increasingly powerful structural constraint upon national policy autonomy in all countries...Third, I argue that it would be wrong to conclude from this somewhat Euro-centric literature that financial globalization has had little effects at all. The emergent international financial structure constrains governments, but very unequally: most of the costs and risks it entails falls largely upon developing countries" (1).

The author argues that global financial flows have grown considerably since the 70s, and that this represents a unique global phenomena. However, measures of these global transfers are not perfect, and Walter goes about exploring a few different metrics for thinking about changes in and different types of international financial tools. The author argues that financial global integration has not been benign, or simply beneficial for less developed countries: "...the costs of financial integration have been substantial" (5).

While these costs have been high, and the author argues that they are higher than anticipated, it is a wonder that countries who have suffered through the ill effects of increased financial costs (ie., the SE Asian financial crisis) have not imposed capital controls (with the notable exception of Malaysia). "Three main approaches in the existing political economy literature to explain financial globalization may be identified: technological determinism...hegemonic power approaches...and rational interest group approaches" (5).

The author then goes on to provide literature reviews of each of these three explanations for the increase in financial interdependence.

"I have argued that structural theories, including technological determinism and hegemonic power theories, are better at explaining the broad trend towards financial opening since the 1970s. However, they largely fail to explain the large differences in patterns across countries. Rationalist interest group approaches, supplemented by institutional analysis, provides considerably greater insight into the cross-country pattern of financial liberalization, but perhaps inevitably does so at the cost of much greater analytical complexity" (14).

Hirst and Thompson: Globalization in Question: Globalization and the History of the International Economy

PQ Hirst and G Thompson, Globalization in question (Polity Press).

Ch. 2: Globalization and the History of the International Economy:

Common assumptions about globalization are that it began gathering steam after WWII. The authors problematize this assumption. "The key issue at stake in our assessment is the changing autonomy of national economies in the conduct of their economic activity" (19).

The authors briefly explore the relationship between growth levels in output and trade, exploring the patterns of its development from the 19th century through to the late 20th century.

The movement of labor, or migration, is the next issue taken into consideration. Figure 2.3 on page 26 clearly demonstrates that, whether migration is measures as a percentage of the population or in absolute numbers, levels of immigrants coming to the US were highest in the mid 19th century and by the end of the first decade of the 20th.

Relative economic openness is the next measure of globalization that the authors explore from a historical perspective. This is accomplished, at least initially, with a GDP to trade ratio. The 1913 period is seen as representing a higher degree of the ratio of GDP to trade than the 70s. Other issues of comparative globalization are addressed such as remittances and regionalization.

The history of monetary and exchange rate regimes is then explored. A helpful chart (Table 2.5) is produced outlining the different regimes that existed from 1879 to the late 1990s (33).

"We have striven to argue a number of points in this chapter. First, that the level of integration, interdependence, openness...of national economies in the present era is not unprecedented...The second point has been to argue that governance mechanisms for the international economy have been in place over almost the entire twentieth century, in one form or another...Thirdly, we have argued that there are some new and different issues of economic interdependence in the present era which are particular to it...Finally, we have traced the trajectory of 'national economic autonomy' through the various regimes of governance operating over the twentieth century. This has shown that such autonomy ahs oscillated between periods of strong and then weak forces, and that it has operated with various degrees of effectiveness" (60-1).

Wallerstein: The Capitalist World-Economy: Essays

I Wallerstein, The Capitalist World-Economy: Essays (Cambridge University Press, 1979).

Ch. 1: The Rise and Future Demise of the World Capitalist System: Concepts for Comparative Analysis:

Wallerstein begins by exploring the phenomena of the industrial revolution. Some argued that this was the penultimate state of human development. Others, most notably Marx, argued that there were yet further states through which society must develop. Wallerstein briefly questions whether or not it is possible to skip stages, and argues that, if we are living in a world system, a world economy, than stages cannot be skipped. If they could be, then they would not be stages.

"Leaving aside the now defunct minisystems, the only kind of social system is a world-system, which we define quite simply as a u8nit with a single division of labor and multiple cultural systems" (5).

The author makes a distinction between world economies and world empires as global systems.

"World empires are basically redistributive in economic form" (6).

"By a series of accidents...northwest Europe was better situated in the sixteenth century to diversify its agricultural specialization and add to it certain industries...than were other parts of Europe. Northwest Europe emerged as the core area of this world-economy..." (18). "Capitalism was from the beginning an affair of the world-economy and not of nation-states" (19).

"There are today no socialist systems in the world-economy any more than there are feudal systems because there is only one world-system. It is a world-economy and it is by definition capitalist in form" (35).

Robinson and Gallagher: The Imperialism of Free Trade

R Robinson and J Gallagher, “The Imperialism of Free Trade,” Economic History Review 6, no. 1 (1953): 1-15.

The authors begin by arguing that standard definitions and explorations of imperialism and empire are lacking, as they focus solely on formal rule. "The conventional interpretation of nineteenth-century empire continues to rest upon study of the formal empire alone, which is rather like judging the size and character of icebergs solely from the parts above the water line" (1).

One argument put forth and reinforced through example is that both standard, 19th century accounts of imperialism as well as radical critiques of imperialism reinforced one another in understanding imperialism as formal rule as opposed to less formal economic control.

"To sum up: the conventional view of Victorian imperial history leaves us with a series of awkward questions. In the age of 'anti-imperialism' why are all colonies retained? Why were so many more obtained? Why were so many new spheres of influence set up? Or again, in the age of 'imperialism', as we shall see later, why was there such reluctance to annex further territory? Why did decentralization, begun under the impetus of anti-imperialism, continue? In the age of laissez-faire why was the Indian economy developed by the state? These paradoxes are too radical to explain as merely exceptions which prove the rule or by concluding that imperial policy was largely irrational and inconsistent...The contradictions, it may be suspected, arise not from the historical reality but from the historians' approach to it. A hypothesis which fits more of the facts might be that of a fundamental continuity in British expansion throughout the nineteenth century" (5).

"Therefore, the historian who is seeking to find the deepest meaning of the expansion at the end of the nineteenth century should look not at the mere pegging out of claims in African jungles and bush, but at the successful exploitation of the empire, both formal and informal, which was then coming to fruition in India, in Latin American, in Canada and elsewhere" (15).

North: Structure and Change in Economic History

DC North, Structure and change in economic history (Norton).

Preface:

"The objective of this book is to provide a new framework for analyzing the economic past. A new framework is needed because the analytical tools used by economic historians have failed to come to grips with the central issues in economic history: explaining the institutional structure which underlies and accounts for performance of an economic system, and explaining changes in that structure" (xi).

Early theory of the history of markets focused on the gains made from trade through specialization and a clear division of labor. However, the author argues that those who constructed these decisive models did not take into consideration the costs that are related to this specialization. "These transaction costs underlie the institutions determining the structure of political-economic systems" (xi).

Ch 1: The Issues

North begins by highlighting the assumptions and structure of a neoclassical model to exploring economic "performance" (4). The author outlines the assumptions of the model, that individuals make maximizing decisions that involve opportunity costs within a milieu of scarcity, and that this maximizing behavior involves motivation for increasing the capital stock, which is, according to North, "..a function of the stocks of physical capital, human capital, natural resources, technology and knowledge..." (4). "Under these conditions the growth of total output and the growth of output per capita will be determined by the fraction of income saved...and the rate of growth of population. If the fraction of income saved produces a growth of output just equal to the growth of the population then per capita income growth will be zero. On the other hand, a higher rate of saving than of population growth will produce a positive rate of per capital income growth" (5).

This model is just that, a representation of reality. "First of all, the model assumes an incentive structure that will allow individuals to capture the returns to society of investment at these margins, that is, private and social returns are equated. Second, it assumes no diminishing returns to the acquisition and application of new knowledge because of the ability at constant costs to increase the stock of natural resources. Third, it assumes that there is a positive return to savings; fourth, that the private and social costs of having children are equated; and finally, coincidence between people's choices and the desired results" (5). North goes through these assumptions and explains how they are limiting, and at most harmful and at least obfuscating (6).

"Laying bare the assumptions of the neoclassical model points the direction that I shall take in this book. Explaining economic performance in history requires a theory of demographic change, a theory of the growth in the stock of knowledge, and a theory of institutions in order to fill out the gaps in the neoclassical model briefly delineated above...The primary focus of the study is upon a theory of institutions. The building blocks of this theory are: 1. a theory of property rights that describes the individual and group incentives in teh system; 2. a theory of the state, since it is the state that specifies and enforces property rights; 3. a theory of ideology that explains how different perceptions of reality affect the reaction of individuals to the changing 'objective' situation" (7-8).

North claims that there is one more large problem that economic historians have to deal with: that of change in history, or structural change.

In the standard neoclassical model, change is considered within an ideal-type. North gives the example of a society with a fixed amount of land that experiences population growth. This will drive short term food prices up, rents from land up, and the purchasing power of wages down. North contends that this is all well and good, but another story will likely unfold if institutions are taken into account, specifically, he highlights two issues that an institutional account focuses on: the structure of the economic system as well as a more nuanced understanding of individual rationality. The remainder of the chapter compares different approaches to understanding collective action.

Ch 2: An Introduction to the Structure of Economies:

The chapter begins by exploring a brief history of thought vis-a-vis the relationship between resource availability and population growth. "...the argument of this book is straight forward. 1. There have been two major discontinuities in the population/resource rates in history; I shall call them the First and Second Economic Revolutions. 2. Between these two revolutions there have been periods of Malthusian population pressure which have been overcome sometimes by physiological and social responses, and sometimes by alterations in the efficiency of economic institutions which have altered the resource base" (16).

Ikenberry: A World Economy Restored

GJ Ikenberry, “A World Economy Restored: Expert Consensus and the Anglo-American Postwar Settlement,” International Organization 46, no. 1 (1992): 289-321.

How was it possible for the post war international economic order to emerge from the chaos of WWII? This article explores how British and American experts found areas of consensus in order to push forward a vision of the world that was neither emphasized old imperial economic orders or entirely free trade.

"I argue that the policy ideas inspired by Keynesianism and embraced by a group of well-placed British and American economists and policy specialists were crucial in defining government conceptions of postwar interests, building coalitions in support of the postwar settlement, and legitimating the exercise of American power. By shifting the focus from trad3e issues, which were highly contentious, to monetary issues, about which there was an emerging 'middle ground' created by Keynesian ideas, these experts helped overcome political stalemate both within and between the two governments. Put simply, this group of British and American experts intervened at a particularly fluid moment in history to help the British and American political establishments identify their interests, thereby creating the basses of postwar economic cooperation" (291).

Ikenberry goes on to list seven key features of this group of policy experts and the context in which they were making decisions.

"The group of economists and policy specialists involved in the postwar settlement, however, did not fully constitute an epistemic community, nor did the manner in which these experts influenced the terms of the settlement conform to the strict logic of epistemic community influence that is proposed elsewhere in this volume" (293). Firstly, this was not a scientific community affecting policy, but a group brought together in the interest of solving a problem. Secondly, the ideas of the group were not as homogenous or as deeply rooted in tenants of a theory as would be the ideas of an epistemic community. Thirdly, this group did not drive policy adoption, but rather, political needs drove the selection of this group.

This story is then told in great detail and I skimmed it.

Fligstein: The Architecture of Markets

Fligstein, N., 2001. The Architecture of Markets: An Economic Sociology of Twenty-First-Century Capitalist Societies, Princeton University Press.

“Market society has produced more income, wealth, goods, and services than any other form of human social organization. It has done so by creating the conditions for social exchange between large groups of human beings, often separated across large geographic spaces. For most observers, the driving forces of this wealth creation have been technology and competition” (3).

“The purpose of this book is to begin to systematically understand how the dynamism of technology and competition is situated in, defined by, and structured through the production of firms, their social relations with each other, and their relations to government. Put simply, the dynamism of market society is made possible by this extensive social organization. Competition and technological change are themselves defined by market actors and governments over time. These forces are not exogenous to market society, but endogenous to these social relations” (4).

“This dependence of t5echnology and competition on social factors implies that making sense of economic growth requires we think more systematically about these factors. Economic growth depends on governments, institutions, and the social technologies by which firms are created, class struggle si routinized, and competition between firms is mediated” (5-6).

“My overall goal is to provide scholars and other persons interested in policy with analytic tools to make sense of such phenomena as globalization. Ultimately, my analysis suggests that governments and citizens are part and parcel of market processes. The evidence shows that very different systems of relations among workers, firms, and governments have produced economic growth. The frequently invoked opposition between governments and market actors, in which governments are viewed as intrusive and inefficient, and firms as efficient wealth producers, is simply wrong. Firms rely on governments and citizens for making markets. Their ability to produce stable worlds depends greatly on these relationships. The analytic frame proposed here explores when these relationships produce positive and less positive outcomes for all members of society” (6).

“Economic sociology is the study of how the material production and consumption of human populations depend on social processes for their structure and dynamics” (6).

The author then attempts to be more clear about exactly what a sociological approach to markets fully encompasses. One wants to strike a balance between being too inclusive and too exclusive in this distinction. Instead of drawing a line around the boundary of the field, the author proposes five key questions that people who work in this field should take interest:
“1. What social rules must exist for markets to function, and what types of social structures are necessary to produce stable markets?...
2. What is the relation between states and firms in the production of markets?...
3. What is a ‘social’ view of what actors seek to do in markets, as opposed to an ‘economic’ one?...
4. What are the dynamics by which markets are created, attain stability, and are transformed and how can we characterize the relations among markets?...
5. What are the implications of market dynamics for the internal structuring of firms and labor markets more generally?” (10-4).
The author then attempts to answer these questions from a framework that he refers to as the “political-cultural approach” (15).

Ch. 9: Globalization:

“The political-cultural approach implies that the relations between political and economic elites and the long histories of their interactions have created laws and informal practices that constitute distinct national systems of property rights and governance” (191). This chapter addresses the paradox between increased globalization and decreasing or stagnating convergence. “The political-cultural approach gives us analytic tools to make sense of some of the reasons why trade can grow and yet national capitalisms persist” (192). The author argues, in part, that globalization is not destroying national firm identities or levers of governmental control.

“Globalization generally refers to three economic processes. First, there has been an increase in the amount of world trade such that firms do not just compete in their won economy, but against first from economies around the world…The second meaning of globalization is that the rise of the so-called Asian tigers has come at the expense of First World jobs in Europe and North America..The final meaning of globalization is that the world financial markets for debt, equity, and particularly currency have grown substantially” (193).

The author argues that standard stories about a revolutionary transformation that resulted from increased global interaction are specious. The process of globalization has taken place over a very long period of time with gradual growth in trade and interconnections. Also, while increased usage of information technology is an important part of this story, it is often overstated. Finally, standard stories of jobs being exported from Western countries in a race to the bottom are not necessarily attributable to globalization.

There is then a discussion of finance and the changing role of central banks. Central banks have moved towards more of an emphasis on price stability, most notably after the contractionary fiscal policy of Volker produced a recession after the 70s oil crisis. Also, it is noted that finance has always relied upon governance for a framework in which to operate.

Arguments that the state is dying in the face of globalization are wrong. Some have claimed that states must choose between equity and efficiency, but this assumes that these are mutually exclusive and that the market universally emphasizes one and the state another. Others have claimed that firms will always be able to bypass the controls of states. This has not proven to be the case. The author argues that many of these views stem from those who believe that governments represent rational rent seekers, and are thus a universal ill on the function of markets.

“There is no evidence that trade has made states ‘smaller’ over the past 30 years. In fact, it is quite the opposite. There is evidence that high exposure to trade combined with organized labor has produced more social protection and larger states. There are theoretical reasons to believe that states continue to matter in producing economic growth by providing public goods, the stable rule of law, and under certain conditions, good industrial policy” (217).

Rogowski: Commerce and Coalitions

Rogowski, Ronald. (1989). Commerce and coalitions : how trade affects domestic political alignments. Princeton, N.J.: Princeton University Press.

This text posits that there will be domestic political coalitions or divisions based on a country’s natural relative endowments if they engage in free trade. He creates a handy metric for determining whether or not there will be tension in a given country that is a 2x2 box. Along the x-axis there is a distinction made between countries that are relatively abundant in land or labor. Along the Y axis, countries are separated into relatively capital rich and poor nations.

This is not an attempt to explain all of the effects of trade, but rather to provide a metric that can potentially be useful in determining some of the effects of increased or decreased trade on different coalitions in a given nation. The remainder of the text is an attempt to apply the theory to historical example. At times this is seamless and elegant, and other times it stretches too far to make causal connections that do not exist.

Milner and Kubota: Why the Move to Free Trade?

Milner, HV, and K Kubota. 2005. Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries. International Organization 59, no. 01: 107-143.  

This article traces two global trends that emerged out of the 1970’s and attempts to casually link them using statistical methods. The first trend that is highlighted is the increase in democracy. The second trend that she highlights is the global reduction in tariffs. Her dependent variable is the later, and independent the former.

She initially looks at alternative explanations for changing economic policies. Some focus on economic crises. Others talk about external, ideational pressure emanating from hegemonic forces. Finally, and oddly multicolliniar with her second example, some examine the rise of neoliberal policies as being a force that contributes to decreases in tariffs. She rejects these as being sufficient to explain the global decrease in trade tariffs. For her, this change is accounted for by the increase in global democracy.

Firstly, she makes a causal claim about her variables and tries to construct a qualitative argument for why they are connected. She claims that democracies are better than autocracies at freeing governance from selective interest groups (113). She also claims that the “selectorate”, the group of people that legitimize and support the rule of a politician, changes sufficiently in a democracy. The selectorate in a democracy will be interested in more free trade because this will benefit the whole population. In an autocratic regime, the selectorate will be a small interest group and they will be more interested in promoting protectionist measures (115-7).

“Democratization will thus enfranchise a new group of voters with preferences for lower levels of protectionism” (116).

“In sum, in developing countries where autocratic governments depend on support from a small selectorate and thus are not responsive to the overall population, the governments can employ extensive protectionism. Democratization, however, may break down the old coalition supporting protectionism, and can thus lead to change in the status quo” (117).

She goes on to deploy a (relatively) large-n study of 179 countries, Polity IV democracy numbers and relatively weak tariff numbers (by her own omission – p. 122). She finds, through OLS analysis, that there is a correlation between levels of democratization and decreased tariffs. This, she concludes, links up with her qualitative account of how democracy causes reductions in tariffs.

A critique of this paper could go something like this: the causation that she highlights is not very strong, though it clearly does exist. However, this weak causation does not at all mean that her qualitative story is legitimate. The drivers of the linkage between democracy and reduced tariffs could be one of many things, and this research project does little to promote a humble approach to understanding why a slight quantitative correlation may be present.

It is really interesting that there is some correlation between her independent and dependent variables. However, her case is weakly made and her qualitative story is full of holes.

Kirshner: The Political Economy of Low Inflation

Kirshner, Jonathan. (2001). "The Political Economy of Low Inflation". Journal of Economic Surveys, 15(1), 41. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=4374154&site=ehost-live

First, Kirshner claims that the politics of low inflation have been under theorized by IPE scholars. He is about to remedy this problem by looking at current literature on the politics of inflation generally and focusing on three themes: “the economic costs of inflation, the concept of monetary neutrality from economic and political perspectives, and the importance of disaggregating economic growth statistics” (41). He then goes on to map out his approach to looking at the political implications of low inflation.

The first perspective on inflation examined is the sociological perspective. This sees inflation as an escape valve for societies to release sociological tension. “Inflation is a ‘bad thing’, although perhaps at times a necessary evil, because it is the symptom of underlying social conflicts within society” (43).

The next perspective examined is the neoclassical. This perspective emphasizes the assumption that inflation has economic costs. Actors will change their behavior in response to the perceived actions of governments in the face of inflationary pressures. “In order to avoid the costs of inflation and the pain of subsequent disinflation, it is crucial that monetary policy be de-politicized, that is, insulated from short term political pressures emanating from both interest groups and the government itself" (44).

The third perspective is that of the modern political economist. From this point of view the bad-guy is the state, who is responsible for inflationary pressures. From here, the state is looking out for its own interests, as an egoistic rent maximizer. “Inflation can help the government by increasing its wealth and by affecting its ability to stay in power” (44). Inflation can act as a tax on “cash holdings” (45). This causes the need to depoliticize the monetary process, thus the need for a central bank.

Kirshner then goes on to claim that most economic perspectives claim that there is an economic cost to inflation, but that this cost has never been empirically verified. He looks at literature and models on the subject and finds them to be inconclusive. “In sum, the deductive arguments regarding inflation are indeterminate” (48). “Thus, there is no good reason to believe that moderate inflation has a significant effect on economic performance, or that moderate inflation should be met with aggressive anti-inflationary policies” (50).

Then, why are there so many central banks being depoliticized, especially throughout the 90’s? “The solution to this puzzle is that the opposition to inflation lies in its political effects, not in its economic ones” (51). Inflation affects different groups differently. “Unanticipated inflation…benefits debtors at the expense of creditors, one reason why financiers have always been strong proponents of price stability” (52). The emphasis on price stability can be best understood through a micro-politics perspective, claims the author. From here, it becomes possible to see that there are distributional effects to inflation policy, and that these effects have real political consequences.

From the micro-politics perspective, “The level of inflation is the outcome of an interest group conflict regarding the level of inflation. The economic effects of inflation are dwarfed by these political factors” (59).

Notermans: Policy Continuity, Poilcy Change, and the Political Power fo Economic Ideas

Notermans, Ton. (1999). "Policy Continuity, Policy Change, and the Political Power of Economic Ideas". Acta Poiltica, 34(3), 22-48.

Notermans argues that changes in economic policy stem not from ideational forces, but from material forces. Ideational forces are brought into the picture to simply justify the policy decision. Additionally, different theoretical frameworks can be manipulated in various ways to justify the needed policy response to the material drivers that a nation confronts.

“This article argues that the view that new economic ideas determine the character of new policies reverses cause and effect. More specifically, three hypotheses are advanced: 1.) Ideas exert n independent causal influence on policies by providing for continuity rather than change because economic policy-makers cling to the ideas and policies that were adopted in response to a traumatic event, even if the original constellation justifying such policies has long disappeared. 2.) The changes in macroeconomic policy regimes during this century have been driven by the need to correct cumulative price level disturbances… 3.) Because the timing and character of a regime change is determined by developments in financial and labour markets, it is largely exogenous to the political system” (23).

“In spite of fundamental theoretical differences between the two approaches, it is possible to derive Keynesian-type policies from neoclassical views and vice versa” (26). Notermans believes that, no matter what ideational approach you use, you will be able to manipulate that to produce any economic policy result. This means that people are just responding to material forces, and that ideational forces are tossed about. Eventually, this can be seen as securing economic policy that is more in line with neoclassical models, which tend to reflect reality more accurately. “Hence, policy convergence with the (long-term) neoclassical model is complete: macroeconomic policies need to prioritize price stability, and unemployment is to be tackled by supply-side policies” (27).

Notermans posits in section 4 of his article that ideas do not have a causal influence, even if different policy makers who hold different ideas posit different policies. This could simply mean that their interests diverge and that they are responding to material forces that they encounter. After making this claim, Notermans goes on to say that, since ideas are insufficient to explain macroeconomic change within the economic policies of Europe, he will propose a Darwinian approach. This approach claims that ideas are not of interest, and only policies that respond to price stability will have any worth.

Only firms who respond to the dictates of the market will survive. However, a Darwinistic approach must take into account the idea of path-dependency, as opposed to pure environmental determinism. “…because the behavior an individual market actor faces is largely determined by the behavior of the other market actors, the case for environmental determination of economic outcomes is much weaker than commonly assumed” (32).

However, this aside, the current nature of the market necessitates price stability as the mechanism of Darwinistic selection and adaptation. “In a world where money serves as a store of value, price flexibility no longer necessarily serve s as the device through which markets will quickly return to equilibrium Instead, excessive changes of the general price level may severely disrupt the willingness to engage in productive activity and hence precipitate rather than mitigate economic crises” (33). Therefore, price stability is the holy grail, and markets will orientate around that for material reasons.

“Whereas ideas play no significant role in explaining regime changes, they do play an important role in accounting for regime inertia” (37). “In sum, to the extent that ideas do influence the development of macroeconomic management their influence is generally moderate as they tend to perpetuate a given regime even if the conditions which gave rise to that regime have long disappeared” (37).

Notermans goes on to highlight this ascertain by looking at the cases of Britain, France and Sweden and highlighting how their transitions towards policies of price stability reinforce his theses. However, he also notes that these characteristics are not always going to necessarily be in play, and that a different set of material forces could come along and change the way that economic policy is made.

Lenin: Imperialism: The Highest Stage of Capitalism

Lenin, Vladimir Il Ich. (1996). Imperialism: The Highest Stage of Capitalism: Pluto Press.

This text, originally published in 1916, explains a historical materialist perspective on the imperialism of the early twentieth century. Lenin describes how imperialism is a late, in his word “moribund” stage of capitalist development that came about after the monopolization of production domestically and the need to search for markets abroad. This eventually led to the partition of the globe into different spheres of economic and political influence which also contributed to imperialist wars either between different imperial powers or to subdue native populations.

The first chapter of this book is used to outline the beginning development of late capitalist production’s tendency towards monopolization. “The enormous growth of industry and the remarkably rapid process of concentration of production in ever-larger enterprises represents one of the most characteristic features of capitalism” (11). Enterprises grow, eat other enterprises and eventually become monopolies. These grow into cartels and these cartels eventually grow and become imperial in nature. Another characteristic of this production is that it has become social—the factory has grown to the size of a corporate, social endeavor—however, the “appropriation remains private” (20).

The second chapter is dedicated to the new role of the bank in this late capitalist development. However, because this industry also has a tendency to monopolize, “they become powerful monopolies having at their command almost the whole of the money capital of all the capitalists and small businessmen and also a large part of the means of production and of the sources of raw materials of the given country and in a number of countries” (27). This development both highlights and promotes the next driver of imperialism that Lenin highlights: that of finance capital.

Chapter 3 is dedicated to this factor. “Capitalism, which began its development with petty usury capital, ends its development with gigantic usury capital” (52). Countries are now able to, with the power that they wield through their consolidated banks and finance capital, sit back and lend money to industry which goes out and invests and is productive. The financier sits back and reaps the rewards while having not produced anything.

Chapter 4 looks at the process of exporting capital abroad. “Under the old capitalism, when free competition prevailed, the export of goods was the most typical feature. Under modern capitalism, when monopolies prevail, the export of capital has become the typical feature” (61). Lenin also criticizes those who would like to redistribute the profit to those who are less well off. He says that, “…if capitalism did these things it would not be capitalism; for uneven development and wrenched conditions of the masses are fundamental and inevitable conditions and premises of this mode of production. As long as capitalism remains what it is, surplus capital will never be utilized for the purpose of raising the standard of living of the masses in a given country, for this would mean a decline in the profits for the capitalist” (62).

The next chapter is titled, “The division of the world among capitalist combines”. The word “combine” here should be read as the word “cabal”. At this even higher stage of capitalist production, “we see plainly here how private monopolies and state monopolies are bound up together in the age of finance capital; how both are but separate links in the imperialist struggle between the big monopolists for the division of the world” (72-3).

The next chapter deals with the colonial division of the globe by the superpowers of Lenin’s time. He makes a point that there is a deterministic link between the movement from monopoly capitalism, to finance capitalism and then to colonialism (79). He also highlights how different proletariat groups are united under their imperialist flag, and against the internationalist cause (80). While colonialism has existed at least since the Romans, this is the first time that all of the raw materials were held in the hands of so few private interests.

Chapter 7 is about imperialism and how it represents a unique stage in the development of capitalism. The briefest definition of imperialism by Lenin is that of monopoly capitalism, but this is too parsimonious. He lists 5 characteristics: 1. concentration of production in monopolies; 2. merging of bank and industrial capital; 3. export of capital; 4. international capitalist monopolies dominate and divide globe; 5. territorial separation of world by capitalist powers. (90). This then leads to a struggle amongst existing world imperial powers and newly arrived imperial powers (see Japan in the early 20^th century) (98).

Chapter 8 regards the decay of capitalism, and highlights an earlier theme of laziness and usury. There is, in Lenin’s eyes, a tendency to stagnation and decay. Chapter 9 is a critique of imperialism focusing on its ineffectual nature. Chapter 10 places imperialism in a historical context and argues against other theorists who do not conform to Lenin’s theoretical framework.

Goodman & Pauly: The Obsolescence of Capital Controls?

Goodman, John B., & Pauly, Louis W. (1993). "The Obsolescence of Capital Controls?: Economic Management in an Age of Global Markets". World Politics, 46(1), 50-82. http://links.jstor.org/sici?sici=0043-8871%28199310%2946%3A1%3C50%3ATOOCCE%3E2.0.CO%3B2-3

“In this article, our principle aim is to address two prior puzzles: First, why did policies of capital decontrol converge across a rising number of industrial states between the late 1970s and the early 1990s? Second, why did some states move to eliminate controls more rapidly than others?” The answers to these questions are not the result of broad, ideational shifts on the part of improving the lot of capital mobility. However, these changes can be identified with broader structural changes in, “international production and financial intermediation, which made it easier and more urgent for private firms…effectively to pursue strategies of evasion and exit. For governments, the utility of controls declined as their perceived cost thereby increased” (51).

This article then goes on to outline why this conclusion is the correct one by looking at the cases of movements away from capital controls in Japan, German, France and Italy. Special attention is paid to why these movements occurred at different times in different countries, and the conclusions that are drawn are congruent with the broader conclusions of the paper.

It is clear in this paper that, “global financial structures affect the dynamics of national policy-making by changing and privileging the interests and actions of certain types of firms” (52). This privileging of interest and actions on the domestic level can be seen clearly in the ways in which finance capital interests neglect and evade capital controls when they can. This practice of “evasion and exit” can eventually prove too costly for a country to combat. Thus, they are forced to remove their capital controls.

Initially, this article makes clear that capital controls were a part of the Bretton Woods international economic structure. They were seen as being a crucial tool that domestic economies could use to reign in capital flight and to rebuild. This was even, and still the case with the IMF Articles of Agreement in 1976.

In the 1970s, “two developments dramatically reduced the usefulness of capital controls. The first was the transformation and rapid growth of international financial markets…Just as these changes were occurring, a related development was taking place—an increasing number of businesses were moving toward a global configuration” (57). Both of these changes changed the cost benefit analysis that a nation could use when they were deciding whether or not to implement capital controls. While there were other factors that played roles in this development, these were mainly secondary roles (80).

Frieden: Global Capitalism: Its Fall and Rise in the Twentieth Century (Chapter 15)

Frieden, Jeffry A. (2006). Global capitalism : its fall and rise in the twentieth century (1st ed.). New York: W.W. Norton. (Chapter 15)

This chapter is an interesting and lively telling of the causes and the tension surrounding the movement away from the gold standard by Nixon in August of 1971. This policy change represented the unraveling of the Bretton Woods agreement made amongst many of the Western Allies in the last stages of WWII. Part of this agreement was that the US dollar would be convertible to gold at the rate of 35$ per ounce.

The decision was made by Nixon amid pressure from both the international monetary order and domestic policies. The expectation was that the dollar would be devalued. This was causing a run on the dollar, as people tried to convert it to gold before the devaluation occurred. The US could have countered this effect. This would have involved a, “raise in interest rates, cut spending, restrain wages and profits, and drive the economy into recession” (340).

After Nixon made the move to fiat money, the dollar devalued rapidly. However, everything returned to normal after successive devaluations in 1973. This effectively killed the Bretton Woods agreement.

“The Bretton Woods system combined freedom to address national concerns with international economic integration” (342). It was an agreement born out of WWII. It created a situation that Frieden highlights as eventually causing the following trends that eventually brought about its own demise. Firstly, it created a regime whereby international finance could gain footing, strength and influence. The second change that brought about the death of Bretton Woods, as highlighted by Frieden, was the pressure that was subsequently placed on the dollar by the strength of economic recovery, especially in Japan and Western Europe.

Eventually, the cause of the rupture in the international monetary order stemmed from the success of the Bretton Woods agreement, and because the US eventually placed domestic economic policies above the international agreements regarding gold convertibility. “The US government was simply unwilling to trim its economy to fit its currency commitments under the Bretton Woods system and chose instead to bring the system to an end” (346).

The effects of the movement away from gold convertibility were seen throughout the world. Some of these effects able to be felt in policies that evolved to create nationalist economic protection in developed countries that did not rely on the antiquated gold standard. Other effects were occurring in less developed countries. The process of development in the 70’s can be seen generally to have caused deficits, inflation, political upheaval, urbanization and inequality. These effects were not universal, as East Asia was able to escape them to a degree. Additionally, Frieden highlights the changes in the socialist world in the 70’s and the insecurity that arose there.

“The postwar era ended in the early 1970s. The developed capitalist world had come out of World War II with a compromise that blended international economic integration with national policy independence, the market with the welfare state” (359). This sounds much like Ruggie’s Embedded Liberalism thesis. The 70’s represented a rupture away from post WWII development. Frieden ends by making the claim that, while the 70’s saw a hemorrhage in the development of developed countries, less developed countries and socialist countries, this was after each of these respective groups were very successful in achieving what they wanted after WWII: respectively, an international trade and finance integration, industrialization, and industrialization.

Ruggie: International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order

Ruggie, John Gerard. (1982). "International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order". International Organization, 36(2), 379-415. http://links.jstor.org/sici?sici=0020-8183%28198221%2936%3A2%3C379%3AIRTACE%3E2.0.CO%3B2-%23

International regimes are defined by Ruggie to be, “social institutions around which actor expectations converge in a given area of international relations” (380). He then implores that we think about them as, “the language of state action” (380). This language is constructed by a “generative grammar” (380), which consists of “principles, norms, rules and procedures (380).

In this piece, Ruggie is interested in exploring the nature of a liberal economic order as it progressed after WWII. Specifically, he takes a bit of terminology from Polanyi and talks about “Embedded Liberalism”. Polanyi used the word embedded to refer to the relationship between the economy and society. Before the “three fictitious commodities” were commodified, the economy was embedded in society. When the economy was dis-embedded from society, that is what caused the great turmoil that eventually lead to the rise of fascism and the horrible events of WWII. Ruggie, along a similar vein, wants to make the eventual claim that a liberal economic order was embedded within society.

Claims that, when a great hegemon arises, a liberal economic order is sure to follow are shallow for Ruggie. This does not help us understand economic regimes. Instead, we must look elsewhere and Ruggie looks in three places: He looks at the generative grammer, or structure, of international regimes. These, he claims, can provide insight on the form but not the content of the regime. This leads to his argument about embedded liberalism. Secondly, Ruggie examines the relationship between international economic regimes and developments in the international economy. These developments do not move evenly, or in tandem. However, there are several specific developments that emerge which I will not detail here. He thirdly argues that power and purpose do not necessarily work in conjunction, and that change in international regimes does not always directly follow the wishes of the hegemon.

He then provides evidence for these hypotheses and conclusions. I will not examine that in detail, though the article is an engaging read.

Gerschenkron: Economic Backwardness in Historical Perspective (Chapter 1)

Gerschenkron, Alexander. (1962). Economic backwardness in historical perspective, a book of essays. Cambridge,: Belknap Press of Harvard University Press.

A historical approach to understanding how countries develop written in 1962. There is an explicit call to modesty, and a claim that, “the search is no longer for a determination of the course of human events as ubiquitou8s and invariant as that of the course of the planets” (5). Much of this chapter reads like E.H. Carr.

Many of the characteristics of countries that move suffering from “economic backwardness” to development (should probably be “economic forwardness”) can be mapped following a similar path. However, while these developments are similar, they are not altogether the same. Thus, with the advent of new technologies and advancements in economic ideology, the developments of these less well-off countries can change.

Developments proceeded first in England, and they were spurned on by an increasing labor market, improved technology, the support of the banking sector, the state and the buttress of ideology (Smith, Ricardo, etc.). Economic developments then proceeded in Germany and finally Russia, each with distinct characteristics, though all with the support of the above mentioned institutions.

Additionally, as these three countries developed, the relationship amongst the abovementioned institutions also changed. An example of German banking related to industry is given. Eventually, banking and industry move beyond a “master/slave” relationship and towards something more equal.

Ending this chapter, we look at ideology. The rise of Saint-Simonian ideas is examined. These ideas are explicitly socialist, but they eventually are used to bolster a capitalist system of production. The author notes that development occurs in such strange ways. “Capitalist industrialization under the auspices of socialist ideologies may be, after all, less surprising in a phenomenon than would appear at first sight” (25). I would add that the same may be argued from the opposite perspective.

Concluding, we are offered three ways that the industrial development of Europe can be potentially illuminating vis-à-vis the economic problems of the time: 1.) the conditions on the ground in the backward countries created the desire for this development; 2.) the concentration on technological leap-frogging (not a term used in the text) and mega-building wasn’t for ego, but development; and 3.) while tried and true development tactics are used to move countries out of economic backwardness, these are always coupled with indigenous methods that aid in conforming the development to the specific context.