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Unit Three: Thinking Liberally - Diversity and Hegemony in IPE Dr. Russell Williams
Outline: 1. Introduction – basics of Liberal Political Economy 2. “Normative” Liberal Approaches 3. “Analytical” Liberal Approaches 4. Conclusions 5. Further Reading
Required Reading: Cohn, Ch. 4.
Class Discussion Reading: Eric Helleiner, “Economic Liberalism and Its Critics:
The Past as Prologue?,” Review of International Political Economy, 10-4 (November 2003), pp. 685-696.
1) Introduction – Basics of Liberal Political Economy:
Most popular approach in IPE Ideological basis for:
Most international institutions Most states’ international economic policies The “Washington Consensus”
Supported by: Leading states MNCs Most academics
However, is it a single school of thought? Diverse and complex = may encompass too wide a body of
thought to be a single school Often defined by its opposition to realism
Residual and “discursive”
The “Liberal Paradigm”:
1) Methodological Individualism 2) Political pluralism 3) Markets preferred to states
E.g. Purpose of cooperation = achieve most efficient use of world’s resources
4) Optimistic about potential for international cooperation E.g. Focus on “absolute gains”, not “relative gains”
Absolute benefits of cooperation seen as large
5) International politics “separable” from international economics (?)
Two kinds of liberal approaches: Normative Analytical
2) “Normative” Liberal Approaches: a) Classical Liberalism or “Orthodox Liberalism”:
(Locke, Smith, Ricardo and early economics)
Free markets more efficient E.g. Smith’s “invisible hand” - Linked production
more efficiently to consumption through “voluntary exchange”
Three key principles:
1) Accumulation of profit leads to overall economic growth States’ job = create conditions for profit
2) Labor theory of value: Price of goods directly proportional to the value of labor
in production
3) “Comparative advantage” – “invisible hand” of free trade
Different then normal “Absolute Advantage” and specialization
If each country produced what they were most efficient at, Regardless of whether they were the most efficient producer over-all, total production would be higher
=“Absolute gains”
Without trade: Wine Cloth
Portugal (18)/2=9 (12)/4=3
England (15)/5=3 (15)/5=3
Total = 12 Wine 6 Cloth
With trade & specialization: Wine Cloth
Portugal (30)/2=15 (0)/4=0
England (0)/5=0 (30)/5=6
Total = 15 Wine (+3) 6 Cloth
Total output higher = absolute gains
2) Labor theory of value: Price of goods directly proportional to the value of labor
in production
3) “Comparative advantage” – “invisible hand” of free trade
Different then normal “Absolute Advantage” and specialization
If each country produced what they were most efficient at, Regardless of whether they were the most efficient producer over-all, total production would be higher
=“Absolute gains”
Powerful proof of benefits of free trade
2) “Normative” Liberal Approaches: b) Marginalism and Neo-classical economics:
Liberal economics develops as a “science”
Marginalism: Value of goods determined by price . . . Not labour
= Neoclassical Economics: Combined arguments supportive of free market, with a mathematically/scientifically inclined school of economics. Assumed:
1) Markets were perfectly competitive 2) Markets moved towards equilibrium
Theoretically suggested little role for the state in managing the economy
2) “Normative” Liberal Approaches: b) Marginalism and Neo-classical economics:
Liberal economics develops as a “science”
Marginalism: Value of goods determined by price . . . Not labour
= Neoclassical Economics: Combined arguments supportive of free market, with a mathematically/scientifically inclined school of economics. Assumed:
1) Markets were perfectly competitive 2) Markets moved towards equilibrium
Theoretically suggested little role for the state in managing the economy
E.g. A natural and efficient division of labour will develop = Only “irrational” governments would ignore the benefits of
specialization
c) Embedded Liberalism and Keynesianism: a.k.a. “Interventionist” liberalism
Saw benefits of free markets, but argued markets had to be “embedded” in social and political realities
Sources: State desire for “autonomy” Growing popularity of Keynesian economics
c) Embedded Liberalism and Keynesianism: a.k.a. “Interventionist” liberalism
Saw benefits of free markets, but argued markets had to be “embedded” in social and political realities
Sources: State desire for “autonomy” Growing popularity of Keynesian economics
“Keynesianism”: Argued there was a need for macroeconomic state intervention in the economy States should manipulate monetary and fiscal policies to:
1) Increase demand during recession 2) Decrease demand during “overheated” economic growth
“Keynesianism” . . . .
Keynes’s ideas often called: “Counter-cyclical demand management” “Macroeconomic stabilization”
Justified the growth of social/welfare policies and was basis of Post War “class compromise”
Key point: Post War economic cooperation designed to make Keynesian policies possible Reduce domestic radicalism Reduce international conflict Ensure states would continue to support free trade
Result – Liberal free trade was “embedded”
d) “Neoliberalism”: Return to the neo-classical economics and a rejection of
Keynesianism
Beliefs: 1) Individual freedom goal of society 2) Self regulating market still most efficient 3) Where market failures occur, state unlikely to improve on
the situation 4) Profits the basis of economic growth 5) Size of the state should be reduced = Increase the
scope of the market in allocating resources in society Neo-Liberals see the state as playing only a “residual”
or “supplementary” role: E.g. National Defense
3) Analytical Liberal Approaches: Much liberal analyses in IR focused on:
Problem of interstate cooperation Challenge of Realism
Major “groups” of liberal arguments: 1) “Institutionalist” approaches: Focus on problems of
interstate cooperation and international institutions 2) “Interdependence” approaches: More clearly “liberal”-
focus on domestic politics, interests, and institutions E.g. More interest in non state actors
Both have evolved as explanations for why there is more economic cooperation then realists assume
a) Liberal Institutionalism: E.g. Robert Keohane = “Neo-liberal institutionalism”
Attempted to “subsume” “neo-realism” - argued: 1) States motivated by:
Anarchy and distribution of power Pursuit of wealth – E.g. absolute gains from
economic interdependence and free trade 2) Economic cooperation (liberalism) impeded by fear of
“cheating” E.g. “Prisoner’s Dilemma”
• United State’s preference = DC>CC>DD>CD • Canada’s preference = CD>CC>DD>DC
• Realism: If both states are rational, fear of cheating and “relative gains” leads to: Equilibrium at (D,D)
Key Point: Both states worse off then they could be . . . Not “Pareto-Optimal”
Neoliberal Institutionalists argue (C,C) is often equilibrium Why?
1) “Iteration” - repeated interaction increase likelihood of cooperation
2) Institutions – reduce fear of cheating Surveillance & transparency Dispute resolution
a) Liberal Institutionalism: E.g. Robert Keohane = “Neo-liberal institutionalism”
Attempted to “subsume” “neo-realism” - argued: 1) States motivated by:
Anarchy and distribution of power Pursuit of wealth – E.g. absolute gains from
economic interdependence and free trade 2) Economic cooperation (liberalism) impeded by fear of
“cheating” E.g. “Prisoner’s Dilemma”: Category of game
used to explain possibilities of cooperation . . . . International institutions can increase possibility of
pareto optimal outcomes
b) “Regime Theory”: Key liberal response to HST – explains endurance of
international cooperation in absence of a hegemon
“Regime”: Institutional relationships that deals with specific issue areas in international politics
E.g. The trade regime
Create regularity in actors’ behavior and expectations Made up of formal institutions, decision making
procedures, rules, principles and norms . . . .
3) Analytical Liberal Approaches: Other liberal theories are less institutional – see IR in more
pluralistic terms – states are not unitary actors . . . .
a) “Interdependence Theory” (Keohane and Nye) Increased economic integration alters “calculations” of states -
creates costs for non-cooperation States not free to pursue unilateral policies because of complex
web of relationships
Interdependence can be hierarchical : Interdependence Asymmetric interdependence
Dependence
Suggests: Power politics not separate from economics . . . . Interdependence, once achieved, creates domestic pressure to
keep cooperating Domestic politics “matters” . . . . “Globalization” changes nature of global politics
b) Republican Liberalism: Emphasis on domestic politics Domestic political institutions make cooperation more or
less likely E.g. Democracy makes it harder for “rent seeking” elites to lead
states into irrational policies
Examples: Theory of Democratic Peace Democracies more likely to support free trade (Moresescik)
By ignoring those different domestic institutional contexts, realists cannot explain why democracies get along better then non-democracies
c) Commercial Liberalism:
Economic interdependence alters individual preferences, which via domestic politics changes “state preferences” State directly transmits the desires of citizens/firms
Issues are “intermestic” – no clear distinction between domestic and international politics
Suggests: Non-state actors likely to be important Economic Globalization supports “Neoliberalism”, not “neorealism”
Interdependence:
More international trade and
investment -Advent of MNCs
Domestic Politics
More domestic actors with
international economic interests
State Preferences:
Support for free trade and global
economic liberalism
Further Reading: Robert O. Keohane and Lisa L. Martin, “The
Promise of Institutionalist Theory,” International Security, 20-1 (Summer 1995), pp. 39-51.
Robert O. Keohane and Joseph S. Nye, Power and Interdependence, (Scott, Foresman, 2nd ed., 1989), chapter 1 (pp. 3-22) and chapter 2 (pp. 23-37).
Either is a good example of two major varieties of liberal thinking . . . .
4) Conclusions
Strengths of Liberal Approaches:
Incorporation of domestic politics . . . Levels of analysis division of international/domestic
politics unrealistic
Empirical . . . Can explain persistence of economic cooperation
Globalization . . . Liberal approaches dealing directly with the meaning
of globalization for modern IPE and domestic politics
4) Conclusions
Problems?
Too many considerations! Not parsimonious
Lack of focus on “distributional consequences” of international politics Is liberalism idealistic in this regard?
Perspective is very ideological Global capitalism and free markets are inherently
good
For Next Time: Unit Four: Historical Materialism (a.k.a
“Marxism”) and IPE (October 6 & 8) Essay Proposal due in class, October 8!!!!!! Required Reading:
Cohn, Ch. 5. Class Discussion Reading:
Robert W. Cox, “Civil Society at the Turn of the Millennium: Prospects for an Alternative World Order,” Review of International Studies, 25 (1999), pp. 3-28.