APUNTES IMPORTANTES Y PREGUNTAS PARA EXAMEN DE IPE

ZERO SUM GAME- MERCANTILISM

We know that mercantilists vie trade as a key avenue to obtain wealth through a higher export
system than import system to generate wealth and therefore security through a surplus account,
mainly of gold and silver reserves. This means that mercantilist view trade as positive if they are
in trade surplus. This means they understand it as a zero sum game where a country’s win
(surplus) is necessarily off-set by another country’s loss (deficit). This is why they establish
a policy approach that implies running a trade surplus paid off by another country’s trade
deficit, by shipping off gold and silver meaning wealth for the country carrying the surplus
account, more power and more security.

GREAT STATE INTERVENTION: regulate the economy so that trade is regulated for countries
to drive a surplus trade account.

THIS ENDS WITH THE RISE OF BRITISH EMPIRE AND INDUSTRIAL REVOLUTION

OPEN MARKETS AND FREE TRADE – LIBERALIST

Trade is a win-win situation. All countries benefit from free trade and open markets. Positive
sum game in which every country could benefit. This essentially means that countries can
consume more and more varied goods that they would be able too if trade were more regulated
and they had to self-suffice as a country. This means through free trade, every country can
improve their development and start and economic growth journey.

MINIMAL STATE INTERVENTION: markets self-regulate through the individual interest of

people that end up accomplishing the greater good. The only this state must intervene in is to
establish the regulations that provide a healthy competition in a free market structure.

THIS ENDS WITH GREAT DEPRESSION: PROTECTIONIST APPROACH (more

mercantilist than liberal). Ineffective because everyone adopted the same policies and economy
continued to decline: prisoner’s dilemma

Devalue of the American dollar: makes the dollar cheaper compared to the rest of the
currencies.

- This makes American goods cheaper in relation to foreign goods

- More exports: economic growth
- Necessity of more production of national goods: more employment and reduce of the
high unemployment the crisis had caused
ORTHODOX

LIBERALISM start off with laissez faire: no state intervention, free trade, open and self
regulating markets, freedom of choice in labour and enterprise, private property…

Then ADAM SMITH with his theory of the invisible hand starts to say that it may be intelligent
to consider some state intervention. The self interest of each of us conforms the economic
drivers that self regulate the supply and demand in the open market to make it regulate. There is
need for minimal to no intervention.

HETERODOX

They start to notice there are some inequalities in the market without state intervention; there is
income inequality, information asymmetry, unequal bargaining power…. the start to consider a
BIGGER STATE INTERVENTION (minimal) and BIGGER CONCERN FOR SOCIAL
JUSTICE. KEYNES manifests this with the paradox of thrift as he says that when we all
individually look to save, we are not consuming and there will be an overall decline in the
domestic economy. This is why a rational induvial interest could cause a collective demise that
could be compensated with government spendind; tax cut, government spending, stimulate
growth, spend whatever money society is not currently spending.

KEYNES thought no state intervention and the invisible hand where the offset of the negative
consequences.

SIMILARITIES BETWEEN THEM: they book look for collective good, they want to promote
economic growth, they give a role to the state but minimal, they want international free trade
and no barriers because they thing free trade is a win win situation due to comparative and
absolute advantage.

BOTH: hegemonic stability theory. Having a common hegemon gives the assurance and
guarantee of stability as they spend whatever the rest of the world can’t spend. This is why
liberals think the presence of a hegemon will promote free trade because it gives a sense of
stability. UNIPOLAR SYSTEM = SINGLE DOMINANT ACTOR O STATE THAT
ENFORCES POWER ON THE REST OF THE COUNTRIES basically what the hegemon
is in charge of is maintaining international stability because this stability depends on him. For
example after WWII, nearly every world and great economy was devastated and preferred to
establish a more mercantilist/protectionist approach to boost their economic growth. If USA had
done that (the hegemon at that time as it held the max number of dollars and every currency was
pegged to the dollar) the system would have collapsed. International regimes help develop the
structure.

LIBERALS: supply collective goods and overcome the free rider dilemma. Willingness of
some free riders in exchange of their collective and nearly constant cooperation enables the
constant supply of collective goods.

MERCANTILISTS: hegemons provide security to another country in exchange for their

general cooperation. They emphasize the benefits and surplus the hegemon gains given to their
central position.

STRUCTURALISM: Imperial nature of the hegemon’s ambition. They can impose their rules
on the peripheral states to exploit them and expand their own wealth and position. They signify
the constant battle between the bourgeoisie and the proletariat.

EXAMPLES: OPEC (cartel that dominate global oil export => prices). They are a hegemon
because there are 14 countries that control almost half of the worlds oil production. However,
they have to work in line with an international standard. Every country wants to raise their
exports to make a higher income. However, it is much more probable that if all of them increase
their exports more than their quotas, oil prices would fall and the cartel would lose power and
income. High prices could also mean the development of appearance of new renewable
energies. SAUDI ARABIA inside the cartel underproduces its quota so that the cartel maintains
its power position.

ABSOLUTE ADVANTAGE

Country can produce good more efficiently than other countries => produce more of a
particular good using less effort and fewer resources than another country could need

If you specialise in the production of these products and free up trade, you are most likely to
enjoy a win win situation (a positive sum game) where you enjoy the goods you produce and the
ones trade to you for less money, as they are specialised and require less resources and effort.

COMPARATIVE ADVANTAGE

Country can produce a good relatively more efficiently than another good in comparison to
another country

MARXIM- STRUCTURALISM

State capitalism: Exploitation of the proletariat by the state rather than by the private
companies
State owned companies but the ones that work there are the proletariat. Essentially the
domestic economy is seen as a huge corporation run by the state.

The problem that Marxists specify is basically that the wealthier people and states take
advantage and exploit the workers in the developing peripheral states in order to increase and
consolidate their own power. According to Marx, the exploitation of the burgeoise of the
proletariat will make the system work at full capacity, this will make increase labour supply
and lower wages. This could also happen with the evolution of technology. The automatization
of the production line will mean that labour supply greatly decreases. This will mean that
unemployment will rise and the wages will remain low for those who work given that the rich
are spending their money on the investment of more innovative, productive and efficient
technologies. The wealthy also hold the power to impose their IDEALS and manipulate the
poor into thinking the same thing => height of this is IMPERIALISM.

Remember the 3 principles that represent the tree main reasons Marx thinks the capitalist
system will fail; profit rate loss (advance in technology will mean a larger investment of the
elite, displacement and lower wages for workers, they cant spend money on the goods produced
by high productivity because there is no money to spend, the profit falls independently to the
high productivity), disproportionality (same thing; rich have the money but the overproduction
eventually means an underconsumption), concentration of capital.

CONSTRUCTIVISM

Appears in the 20th century and basically means that the institutions have a meaning and have
certain power because the individuals give them the power they have. It’s a sense of identity
with the institution. The catholic church was once the most powerful institution on earth
because the catholic community gave it the meaning and the sense so it could achieve this. On
the other hand there has not been another religious institution as powerful as this.

This is what happens in constructivism. In the same way liberals think that economy acts due to
the personal interest of the consumers that create economic drivers that regulate supply and
demand and in turn the whole market without state intervention, in the same way mercantilists
think state intervention is necessary to regulate the non-tariff barriers and control international
trade, constructuvists think domestic economy works however that country’s society wants it to.
Economy is driven by institution and the meaning we give them, our own interest but most
importantly ideas; principled ideas that have grown with us and that are the final objective we
are looking towards and causal ideas that explain the cause and effect that creates the roadmap
to follow in order to reach that principled idea.
DIFFERENCES BETWEEN MERCANTILISM AND LIBERALISM: trade, institutions and
human rights.

FOREIGN DIRECT INVESTMENT AND MULTINATIONAL CORPORATIONS

Basically we have the birth of multinational corporations which essentially macroproduce goods
and services. This means that they can engage in foreign direct investment which is invest in
another country to colonise some part of the supply or value chain (vertical) or invest in another
country’s resources, put a branch to basically market seek or to engage in tariff jumping. Either
way during the 1800’s there was what we call a global divergence. The power was in the G7
countries whose economy started to boost; engage in investment, innovate technology, work in
production line and increase productivity and efficiency… this made the under-develop
countries lag in technological development and have a slower economic growth. This is when
developing countries start to export resources and knowledge. Suddenly power no longer
resided only in the G7 countries as they needed the developing countries for resources and
knowhow. This made the developing countries more competitive, and the factory flow
shifted. This is when the G7 countries started with FDI; to maintain their position and
competitive advantage.

Types of FDI; market-seeking, tariff jumping, resources, competitiveness (knowledge,

knowhow…), tax evasion, export-orientated (they look for societies that can purchase their
under consumed and overproduced goods). Once they start on FDI they start with the
obsolescing bargaining strategy. This means that initially capitalist developed countries but as
they invest in developing countries, these start to develop. They start to acquire knowledge,
technology transfer, they become more competitive, increase their exports, start introducing
themselves in the international spectrum, they start incentivising, subsidising and promoting
MNC’s to attract foreign direct investment…. ESSENTIALLY DEVELOPING COUNTRIES
BECOME MORE COMPETITIVE AND BARGAINING POWER SHIFTS FROM
DEVELOPED TO DEVELOPING. This means fear of expropriation by FDI government.
To avoid expropriation, they have contracts with specific clauses, treaties and bilateral
agreements, sanctions that prevent companies with a certain % of expropriation…

BENEFITS OF FDI: technology and know-how transfer, creates jobs, promotes economic
global growth, productivity gain…

DISADVANTAGE: sometimes technological transfer > technological resources, exploitation of

labour and resources, gains wealth and power the MNC, incentivizes imperialism…

TRADE
Each approach has different views of trade. Mercantilists think that wealth is power and power
is security. Therefore they think protecionist measures intervened by the state can impose high
tariffs on imported goods and promotion of domestic economy and industries. This later on
evolves into neomercantilism that plays with non-tariff barriers to achieve the same protectionist
measures. They are opposed to free trade given that this takes away power and generates
interdependence between countries which mercantilists are greatly opposed to. They look to be
better than the rest of the countries. Liberals for example promote free trade and open de
regulated markets. This means that they view international trade as they way to gain
comparative advantage: you can export labour intensive products that create jobs and promote
economic growth whilst importing products scarcely labour intensive. They are really
favourable towards the work done by the international institutions. Structuralists think trade is
just another opportunity to exploit the peripheral countries and exploit the labour and resources
of the developing countries. They feel institutions lack the ability to democratise trade and solve
the social and economic inequalities produced by free trade. Lastly constructivists feel the idea
of trade has begun to change. We focus less on free rade and more on fair trade; this is why they
support the work WTO does. Ideas globally have also changed and look to protect the
inequalities in developing countries, environment, energy and food origin.

The GATT was essentially and consensual treaty that countries signed into. WTO is a permanent
institution that applies to all the countries involved in trade, not ad hoc. GATT regulated mostly
trade of products whilst WTO regulates trade of products, services and intellectual property,
therefore can be seen as highly adapted to the innovative times. WTO also has a much quicker
and more fluent channel of dispute settlements through control and sanctions.

INTERNATIONAL MONETARY SYSTEM

GOLD STANDARD: every single currency was pegged to gold. This means that in order to
trade, you would pay a quantity of your currency in exchange for a fixed quantity of gold.
Essentially everyone that wanted gold could exchange their currency directly for gold given that
they were directly pegged to it. This changes in 1945, after the second world war, where USA
had 2/3 of the gold reserves so there was a hierarchy established; all the currencies were pegged
to the dollar which in turn was pegged to gold. This explains the Bretton woods system.

BRETTON WOODS: after the Gold standard act, there were a series of events that made
evident the rigidness of the gold standard. During the world wars and the great depression for
example, there was major inflation and recession which essentially affected the gold standard
and the fixed rate regimen it endured. During these periods they also worried that countries
would endure in protectionist policies and devaluate their currencies to increase expors and
make domestic goods cheaper. This is why they changed the monetary system. At this point the
US had 2/3 of the worlds gold reserve’s so it had most of the influence in establishing the new
regimen. All currencies were linked to the dollar and the dollar was linked to gold. However,
there was the persisting question of how to avoid the devaluation of each currency. The IMF
was created (lend money to however didn’t have financial aid. Bail out in difficult time) and
World bank (help less developed countries grow). At this time there was still a FIXED
exchange rate (35$ PER Oz) as the currencies where pegged to the dollar and this dollar was
backed up by gold. This was a system that endured given the trust each country had on the
dollar printing ability of USA. Problem: DEMAND OF THE DOLLAR STARTED TO
INCREASE WHEN THE VALUE OF GOLD THAT BACKED UP THIS DOLLAR
DECREASED. When the Bretton woods system is abandoned the USA starts to have
stagflation (high inflation, unemployment and low economic growth).

Foreign investment caused prices to rise and USA couldn’t keep up because of this stagflation.
Revaluation of the dollar to gold and people figured this out so they lost trust in USA because
they thought USA didn’t have enough gold to back up the dollar. Nixon unchains the dollar to
gold. This is when we change to variable rate as the dollar is stil the currency we are pegged
to but it is backed up by the promise of the FED. Here is where the MUNDELL trilemma
comes into place.

IDEAS OF ESSAY TYPE QUESTIONS:

1. Imagine a structuralist and a neoliberal discussing globalization. What would they agree
and disagree on?
a. Agree
i. Economic growth
ii. Interdependence: on the structuralist side developing countries unite to
dethrone the capitalists and in the liberal side promote interdependence
as this will boost free trade, open markets and economic growth
b. Disagree
i. Role of state: structuralist involve to solve social inequalities and on the
liberal side they would advocate for a minimal state intervention,
although neoliberals would want some state intervention to compensate
the lack of spending the workers are engaging in
ii. Regulation and institutions: more regulation by the structuralist and less
regulation by the liberals. The institutions are promoted by liberals
given that the WTO is in charge of guaranteeing free trade and
investment. Structuralist think that institutions take advantage of the
poor and impose ideas and ideals questioning the democracy concept
without really doing anything to solve the social inequalities.
 iii. FDI: promoted by liberals (interdependence) and structuralist think its
just another opportunity to take advantage of the knowledge and
resources offered by the developing countries.
2. Constructivist opinion on the COVID 19 crisis
a. Ideas and norms
i. Institutions have the upper hand at regulating and creating new policies
1. Sanitarians, activists, political leaders, scientists.
ii. Global cooperation: role of international organizations, domestic
governments, civil society in the shape of the pandemic. How they
work together to create a multipolarity system that solves all he
problems
iii. Norms and collective behaviours
1. Social distancing, mask-wearing, public health practices…
b. Policy recommendations
i. Norm diffusion and education
ii. Addressing social and economic inequalities and problems
iii. Strengthening international institutions that offer us protection
c. New elements
i. Risk and security
ii. Power and contestation towards the pandemic
iii. Social and cultural factors that help form a solution to the pandemic