Realism: Assumptions. P SC 3553 International Political Economy. Realism and the State. Realism: Analysis of Politics

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1 Realism: Assumptions P SC 3553 International Political Economy II-B Perspectives on IPE: Realism, Liberalism, and Marxism Nation-states: dominant actors and primary unit of analysis--international system: anarchy, nation-states: sovereign Nation-states as power maximizers: politics as a zero-sum game (relative gains) Nation-states as rational power maximizers: political cost-benefit analysis Realism and the State Economic policy not only for national wealth but also for national security Stronger economy=>stronger country Ex. Japan in the late 19th century, rich nation, strong army Higher (civilian) technology => stronger defense Government policy contributes to economic development Competitive advantage (shift to high value-added products) Rapid economic development of South Korea Realism: Analysis of Politics State as an autonomous actor International cooperation as result of political interactions (alliances) State s commitment to economic development Politics influences economics 1

2 Origin of Realism Mercantilists, Gold (wealth) accumulation--national interest Conflict essential to international economic relations--beggar thy neighbor Protectionism for self-sufficiency Classical Realist Thinkers Alexander Hamilton ( ) Strength and development crucial for American national security Emphasis on industrial production, self-sufficiency, trade protectionism Industrial development/competitiveness Friedrich List ( ) Germany, fragmented and behind of Britain Industrial production important for economic development National unity important for economic development Contemporary Realist Analyses Hegemonic stability theory Power distribution => foreign economic policy Hegemon: disproportionately strong power and resource Willing to support free market system Foreign economic policy State intervention for the promotion of industrial strength Economic threat and economic cooperation OPEC oil price North-south relations Less developed countries pursuit of economic development (South Korea, etc.) =>National security and independence Realism: Critique State-Politics based analysis Incorporation of politics into analysis Analysis of extra-economic factors, implications to defense Importance of government policy Distributive effect of free trade 2

3 Liberalism: Assumptions Individuals as principal actors: business entrepreneurs, consumers, etc. Individuals are rational utility maximizers: computing costs and benefits, economic not cultural factors Trade offs between goods: exchange is important; utility maximization through exchanges Orthodox liberals Adam Smith Division of labor for productivity and efficiency Free trade (against mercantilism) Mutually beneficial David Ricardo Comparative advantage A country better off by specializing in products that it efficiently produces (import others) Revived as market fundamentalism after World War II John Maynard Keynes (Interventionist liberalism) Against mercantilism Convergence of self-interest and public interest overemphasized by orthodox liberals Government intervention necessary to modify market mechanism Creating aggregate demand Fiscal policies Employment Liberalism: Government and Market Free market Everyone benefits Efficient allocation of resources Comparative advantage: a country possessing an advantage in producing some goods and a disadvantage in others (LS)==>Trade? A Government intervention in general Rent seeking protectionism: consumers pay higher price Inefficient allocation of resources 3

4 Liberalism: government policy and public goods Public goods Goods and services that make society better off but that would not be provided by private markets (LS)==>Can national defense be provided by private markets? A Property rights, anti-monopoly rules, educations, etc. B Government policy as a solution to the public goods problem (Externality) Government intervention only for solving market failures Liberalism: analysis of politics Economics determines politics Individual interests=>government policy Policy outcome as a result of competition among interest groups Policy and beneficiaries Economic interdependence => cooperation among nations Transnational organizations important Liberal IPE Analysis (Interdependence) Complex interdependence Issue specific cooperation Development of cooperative relations Spill-over International regimes Rules and procedures Constrain international interactions (state) Cooperation valuable Non-state actors influential Protectionism Liberal IPE analyses Interest groups Ideologies Foreign direct investment and domestic groups International negotiations as multi-level interactions 4

5 Liberalism: Critique Importance of market competition Prospect for cooperative international relations Unrealistic: deemphasizing national differences Distributive effects Not clear about the basis of free market Other comments? Marxism: Assumptions Classes as the dominant actors Capitalists possessing means of production Workers Classes act in their material economic interests Capitalists maximizing profit The exploitation of labor by capital in the capitalist economy Government serves capitalists interest Marxism: International Political Economy Imperialism Limit of domestic economy=>economic expansion=>diffusion of capitalism and domination Modern World Economy Capital mobility and weakness of labor World System The core (U.S., Japan, EU, etc.) vs. the periphery Different rate of economic development (against Liberalism s convergence argument) Gap between rich and poor countries Marxism: Critique Mechanism inherent in the capitalist system Emphasis on inequalities Difficult to prove exploitation by the core North-South trade is relatively small Economic determinism (similar to liberalism) and difficulty in explaining rapid economic development achieved by newly industrialized economies (South Korea, Taiwan, etc.) 5

6 Comparison of the three perspectives Liberalism Realism Principal Actors Individuals (Producers, Consumers) State Primary focus of analysis Market activities Politics (National security) Government s role in the economy Secondary (necessary only when market doesn t work) Important International trade Harmonious Beneficial (for everyone) Problematic (different pay offs) Discussion Which approach is effective? Under what conditions is each approach useful? Other approaches? Marxism Classes Capitalists Workers Market Serving the dominant class Problematic (unequal exchanges) 6