International Political Economies

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Hegemonic stability theory

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Hegemonic stability theory
• One country that is particularly rich and powerful dominates other states or the entire international system
• Liberal view on the HST
o Charged with providing public goods absorbing costs associated with promoting free trafe to other members of the system
• Mercantilist view on the HST
o Hegemon provide security to other members in system in return for cooperation
• Structuralist view on the HST
o Hegemon impose their ideals at the expense of others—so far as to say that hegemons are core countries that exploit the periphery
o Not something to be proud of, simply another mean of core domination

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Free Riding

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Free riding
• Hegemons have to deal with the problem of free riding
• It refers to the facts that non-hegemonic states do not pay for the maintenance, or public goods, of the international system, assuming that they cooperate with the hegemon rule

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Speculation

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Speculation
• Plays an important role in the foreign exchange markets
• The theory is if speculators (currency investors) are hoping to capitalize on changes in exchange rates believe that currency X will appreciate, they will buy that currency X.
o As a result of speculation, the increase in demand of currency X will raise the currency X price.

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Central Bank

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Central bank
• Intervenes in the foreign exchange market, buy & sell domestic currency as is necessary to alter its own exchange rate.
• Central banks must maintain foreign exchange reserves of foreign currency
o Foreign reserves used to almost unanimously be comprised of Deutschmarks and US Dollars
o Today, foreign reserves hold much less in US Dollars and instead hold reserves in Euros.
• If the Central Bank does not intervene, a domestic currency could simply decline in value.
o To prevent depreciation, the Central Bank utilizes its foreign reserves to buy/demand its own currency
o The opposite process takes place to prevent the over-appreciation of a currency

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Top Currency

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Top Currency
• As a hegemonic currency the US Dollar is a top currency (but is being phased out…)
• A top currency is a currency that is in great demand because of the confidence in it
o As a result it is often used in international trade and financial transactions
• Top currency is often a reserve currency

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Reserve currency

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Reserve Currency
• The US dollar was also often used as a reserve currency (also being phased out…)
• Foreign currency held in the reserve banks
• Having your domestic currency be a reserve currency is greatly beneficial to the country

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Balance of Payments Crisis

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Balance of Payments Crisis
• Balance of payments becomes an issue when states borrow too much money
o This capitol is often used for development projects or to supplement the cost of imports
• These state lack the capital to offset the current account deficit
• Balance of payments crisis results in a debtor nation

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Transparency

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Transparency
• The public’s ability to see how decisions are made
• In the case of global financial institutions like the IMF, greater transparency is claimed to improve investor’s decision-making an prevent financial crises

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Bipolar Balance of Power

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Bipolar balance of power
• Cold War—US and USSR
• Security arrangement under which 2 superpowers organized international alliances in opposition to each other
o Ideological and geopolitical polar opposites
o Importance of other nations to join a sphere of influence
• Proxy wars One superpower and its surrogate state conducted conventional or guerilla warfare against a proxy of the other superpower, avoiding direct confrontation for fear of initiating a nuclear war.

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NGOs

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NGOs
• Nongovernmental organization, a non-state actor
o This existence of non-state actors is a substantial difference from the Cold War days of the Bipolar balance of power
• Organizations that exist at a level between the individual and the state. Ie. Greenpeace, Red Cross

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IOs

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IOs
• International Organizations, another non-state actor
• Ie. UN Security Council and NATO
• They serve the interests of their creators (major global powers) which back organizations to give them influence

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MNCs

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MNC
• A multinational corporation is a business firm that engages in production, distribution, and marketing that cross national borders. The firm has a tangible productive presence in multiple countries.
o It is difficult for MNCs to be established-- Different laws, employment, ownership, taxation/marketing
o However become known as an agent of exploitation
 Will drive out domestic firms; exploitation of labor, environment, and working conditions; Government corruption—MNCs enhance government corruption; most research and development takes place in home nation so there is no real transfer of technology—intentionally don’t put R&D abroad; the minute there is an upward pressure on the wages, the companies will leave

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TNCs

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Transnational Corporation
• The PC term to describe businesses that compete in regional or global markets and whose business environment extends beyond a given nation. The key element is a high level of FDI
• 2004 top 3 are GE, Vodaphone, and Ford Motors Company
• Many MNCs and TNCs have a larger net worth then countries
o Significant because their size allow them to have greater negotiating power than an entire country

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FDI

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Foreign direct investments
• Distinguishing factor for MNCs and TNCs.
• FDI is important to countries seeking resources for economic growth
• Purchase of business assets such as factories by a foreign firm. FDI is the investment that gives the firm a tangible presence in the country.

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Soft Currency

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Soft currency
- Definition: Soft currency is a type of currency whose value may depreciate rapidly, fluctuate frequently and that is difficult to convert into other currencies. Soft currency can be in the form of paper, electronic or debt-based "IOUs" which have in the past been used in place of hard currency. Most currencies from developing nations are “soft” or “weak” currency. It is generally less desirable than hard currency to users.
- Significance: Each nation’s currency is classified as soft or hard, and it is most desirable to have hard currency. Nations, therefore, must figure out how to make their currency attractive and adapt accordingly.
- Context: Governments of developing countries with soft currency set unrealistically high exchange rates, pegging their currency to a hard currency such as the U.S. dollar.

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British Gold Standard

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- British Gold Standard
o Definition: is a monetary system in which a region's common media of exchange are paper notes that are normally freely convertible into pre-set, fixed quantities of gold.
o Significance: When the standard of exchange is based on a certain currency, that currency’s nation is generally the hegemonic state in the world.
o Context: The British Gold Standard solidified the reality that in the 1800s, Britain was the hegemonic stable power in the world. Britain had the biggest and most important economy at the time that the British Gold Standard was in use. After WWI and WWII the British Gold Standard declined and through Bretton Woods, the Dollar Gold Standard became the accepted standard of exchange.

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Bretton Woods System

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- Bretton Woods System
o Definition: The Bretton Woods system was created in July of 1944. It is the a system of monetary management that established the rules for commercial and financial relations among the world’s greatest industrial states. Bretton Woods created the International Bank for Reconstruction and Development and the International Monetary Fund. Includes 44 Allied Nations from WWII that agreed to adopt a monetary policy that maintained the exchange rate of its currency to a fixed value in terms of gold and the ability of the IMF to bridge temporary imbalances of payments.
o Significance: The Allied Nations were prepared to rebuild the international economic system as WWII was still ongoing. These nations agreed to a system of rules, institutions and procedures to regulate the international monetary system. It created one of the most important institutions in the world today, the IMF, and it has helped the world recover from WWII.
o Context: Bretton Woods changed the way the international monetary system worked. It brings down the British Gold Standard, brings in the Dollar Gold Standard and ends the fixed exchange rate system of the world.

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Dollar Overhang

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- Dollar Overhang
o Definition: Dollar overhang occurred when the amount of US dollar assets held by non-reserve central banks exceeded the total supply of gold in the US Treasury. It occurred in 1960 and continued to worsen through the 1960s.
o Significance: This imbalance created a huge problem for the US dollar. By 1971 foreign holdings of US dollars stood at $50 billion while US gold reserves were valued at only $15 billion.
o Context: Dollar overhang was at 300% and brought down the then current system of fixed exchange rates.

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Dollar Gold Standard

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- Dollar Gold Standard
o Definition: The Dollar Gold Standard replaced the British Gold Standard in the 1950s-70s. Nations decided to hold US dollars instead of gold because US dollars were the desired medium.
o Significance: When the standard of exchange is based on a certain currency, that currency’s nation is generally the hegemonic state in the world. Changing from the British Gold Standard to the Dollar Gold Standard transferred hegemonic power from Britain to the United States.
o Context: The Dollar Gold Standard solidified the reality that post-WWII, the United States was the hegemonic stable power in the world. The US now had the biggest and most important economy. Bretton Woods and the crises of the World Wars helped this transfer come about.

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Petrodollars

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- Petro Dollars
o Definition: A petrodollar is a U.S. dollar earned by a country through the sale of petroleum. The term was coined by Ibrahim Oweiss, a professor of economics at Georgetown University, in 1973. Oweiss felt there was a need for a word to describe a situation then occurring in OPEC countries in which an imbalance of trade largely utilizing a single currency was largely offset by that currency's role as a reserve currency.
o Significance: Petrodollars represent the money that Middle Eastern countries and members of OPEC receive as revenue from Western nations and then put back into those same nations' banks
o Context: For example if Libya were to receive money from the U.S. for oil and then put the money into a U.S. bank, that deposited money is referred to as petrodollars.

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Euro

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- Euro
o Definition: The Euro is the currency used by the nations of the European Union. It is a currency designed to consolidate the eleven currencies of the EU nations to one common currency to fully integrate the economic system.
o Significance: The Euro has made the EU’s economic system one of the largest in the world, competing with Japan and the United States. It changed soft currency of the less developed EU nations to hard currency by facilitating the mission of the EU.
o Context: The Euro has become an incredibly powerful currency and could result in a change from the Dollar Gold Standard to the Euro Gold Standard. It has given EU nations a loss of autonomy and national identity, but in the long run, it gives the EU power over other possible hegemonic states.

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Balance of Payments

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- Balance of payments
o Definition: A tabulation of all international transactions involving a nation in a given year, the BoP is the best indicator of a nation’s international economic status. The most important parts of the BoP are the current account and capital account. The current account is the part of the nation’s BoP that records financial flows due to international trade in goods and services and unilateral transfers between nations.
o Significance: A balance of payments crisis can occur when states have a current account deficit due to too much borrowing and massive amounts of debt.
o Context: It is a global issue that worries many, that debt problems related to balance of payments crises brought on by speculation and capital flight can disrupt and distort trade and international finance relationships. Being a debtor nation isn’t always bad though. Liberals think debt and surplus are a part of the natural flow of the market and global economy, Mercantilists think debt is dangerous and needs to be eliminated immediately and Marxists believe that debt is bad because it is exploitative.

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Universal Declaration of Human Rights

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- Universal Declaration of Human Rights
o Definition: The Universal Declaration on Human Rights is a declaration adopted by the United Nations General Assembly on December 10, 1948 in Paris. It arose from WWII and represents the first global expression of rights to which all human beings are inherently entitled. It has 30 articles that have been elaborated in other treaties and constitutions.
o Significance: The UDHR is important because it was a sincere attempt to hold all signatories responsible for the treatment of citizens around the world. Fun fact: It is the most translated document ever.
o Context: There has been criticism over the role the United States has taken in the UDHR and the provisions that some nations ignore. For example, China provides the social provisions, but China does not allow personal freedoms through its form of government, but on the other hand, the United States does not provide the outlined social provisions but does allow personal freedoms through the Bill of Rights. The provisions are conflicting and hard to uphold.

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Democratic Peace Thesis

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- Democratic Peace Thesis
o Definition: Theory that democracies will not wage war against each other.
o Significance: This theory has been falsified through many examples like the Spanish-American War. Kant argues that through the democratic values of tolerance, that democracies would not fight each other.
o Context: It has been proven wrong through historical evidence, the theory that smaller democracies do not hold the same values as larger ones, that nationalism is more important in the current era than democratic values and the reality of political and social anomalies.

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Lipset

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- Lipset
o An American political sociologist who argued the affect of Catholicism and Spanish/Iberian values on education. He argues that it results in classism in Latin America with an emphasis on fatalism and an afterlife. Education is based on aristocratic values of learning, mainly focusing on the arts.

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McClelland

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- David McClelland
o An American psychological theorist who focused on children’s literature from Asia versus children’s literature from the West. He coined the idea of “n-achievement” that refers to an individual's desire for significant accomplishment, mastering of skills, control, or high standards. He attempted to use children’s literature from these nations to prove culture stems from early learning.

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Pye

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- Lucian Pye
o A Chinese political scientist who argued that the submissive manner by which children are raised in China results in the submissive values they hold when adults. Their upbringing explains why they do not want to participate in a democracy and go along with an authoritarian regime.

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Mathus

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- Thomas Malthus
o An English economist and demographer who is known for the Malthusian Theory of growth that explains that population increases geometrically while resources only increase arithmetically meaning that the population will quickly outgrow the resources on Earth. He argues that disaster is imminent and the only solution is controlling the birth rate.

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Friedman

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- Milton Friedman
o An American economist and public intellectual, and a recipient of Nobel Prize in Economics. He is best known among scholars for his theoretical and empirical research, especially consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy.

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Huntington

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- Samuel Huntington
o An American political scientist who is well known for his theories on civil governments’ relationships with their militaries, democracies around the world and immigration. Culturally, he believes that sources of conflict are almost always cultural and we can use 9/11 as an example of how his theory is still true. He also believes that there have been waves of democracy starting in 1820 until now.

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WW Rostow

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- WW Rostow
o An American economist who is known for his Economic Take-Off Theory in 1960. This theory has 5 steps and he claims that stage 5 is a positive thing, but he has received criticism for this thought. He helped form the Peace Corps which helps develop countries! His theory is good because it has good empirical backup, but it has many exceptions, there is the idea of tautology, that the goal is outdated and irrational, that it promotes economic determinism and ignores political variables and world structures.
 1. Traditional Society – agricultural production, pre-Newtonian beliefs
 2. Precondition for Take-Off – technology boom leads to ag surplus
 3. Take-Off – surplus allows for more focus on industrialization
 4. Drive for Maturity – output exceeds increase in population
 5. Age of High Mass Consumption

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PPP

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- Purchasing Power Parity (PPP) - a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the exchange rate between two countries should equal the ratio of the two countries' price level of a fixed basket of goods and services. Pete used this to disqualify the use of GDP as the sole measure of economic status/development. It takes into account things like inflation and cost of living – thus is more accurate. However, it does not take into account variance of goods or variance in the quality of goods.

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HDI

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- Human Development Index (HDI) – another means to measure and rank countries in economic terms, yet with more factors than just GDP, PPP, etc. Measures with three basic dimension: life expectancy at birth (a long and healthy life), adult literacy rates and combine primary, secondary, and tertiary level enrollments (knowledge), and GDP per capita in purchasing power parity (a decent standard of living). These numbers are averaged to get the score. The score implies a rating of human development and the country’s development – and strives to give a more complete picture. Some say it the numbers it uses are arbitrary.

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GDP

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- Gross Domestic Product (GDP) - The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. Also used as a measure of economic development. Some problems exist in using it as a measure – like Equatorial Guinea – which has high concentration of wealth amongst a small sector of the population – thus, GDP doesn’t catch differences in income distribution internally. Per capita GDP is a measure of the average income per person in a country.

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GNP

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- Gross National Product (GNP) – The total value of goods and services produced in a country in a year. A measure of a nation’s overall economic activity. Was replaced a measure of economic performance and development by GDP. Differences in the two: GNP doesn't include goods and services produced by foreign producers, but does include goods and services produced by U.S. firms operating in foreign countries

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DEPENDENCY THEORY

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- Dependency Theory/Structuralist Theory – a theory of economic development and the relationship between industrialized (core) nations and less developed (periphery) nations that stresses the many linkages that exist to make less developed countries dependent on richer nations. These linkages include trade, finance, and technology. It is an extension of a Marxist, class based analysis on the wider world. It’s also bullshit. Sees a global division of labor – with the periphery supplying natural resources and raw materials to the core, which make manufactured goods and then sell them back to the periphery. It’s a good description of the problem, but offers not prescription – and overlooks other issues like internal politics and the development of a semi-periphery (like OPEC nations)

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POLITICAL CULTURE THEORY

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- Political Culture Theory – a theory of economic (and political) development which bases its analysis on the political culture of a nation (political culture is the sociopolitical orientation towards objects – which is actually much more detailed than this definition from Pete – for a more thorough explanation see pages 3 – 6 of my research paper). The argument is that “good” political culture (like Protestantism, individualism, entrepreneurial society, with a separation of roles, etc) will lead to political and economic development. Conversely, “bad” political culture (stemming from Catholicism and Islam [for example], aristocratic attitudes, classism, etc) will lead to little or not economic and political development. The problems are that it is ethnocentric, doesn’t explain its exceptions, correlation v. causation, and doesn’t look at politics and context of the situation.

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ECONOMIC MODERNIZATION THEORY

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- Economic Modernization Theory – A theory of economic development which uses the national economic system of a country to explain its modernization. States that there is a connection between econ. development and democracy(and vice versa). According to Rostow there are 5 steps: traditional society (agriculture ~ certain isolated towns in the American South = “Real America”), preconditions for takeoff (science into technology, increase in free time, agriculture surplus), take off!(investment of agricultural surplus into industry), drive for maturity (output exceeds increase in population), and “age of high mass consumption” (like people ignoring their diets, or going back to get three plates of fries in the Pit). It’s good empirically, but it’s tautological, has major exceptions (hello China and India), ignores the political variables , and is economically deterministic.

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HARD CURRENCY

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- Hard currency –(1) a currency of known value that readily be exchanged on foreign exchange markets and is therefore generally accepted in international transactions. Has stable exchange rates, is easily converted, backed by stable government and reserves, in sufficient supply, with low inflation. Examples include: $, €, £, ₣ and ¥ (2)Unlike bills, this is money that when thrown at someone’s head has the ability to injure.

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FLOATING EXCHANGE RATE

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- Floating exchange rate – (1) a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency. Is considered to be favored over a fixed exchange rate. Pros: adjusts better to economic change, reflects economic fundamentals, provides better control of monetary policy, and makes managing economy easier. Cons: nation exposed to currency fluctuations, increased risk, mercantilist policy, speculation, little control over inflation, and financial havoc is easily spread – can we say the last 6 months? (2) A currency that is buoyant when placed in water.

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FIXED EXCHANGE RATES

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- Fixed exchange rate - a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold. Ended at the Bretton Woods conference. Pros: predictable, consolidates ones concrete economic benefits, provides for long term purchase contracts, provides stability in the long term dollar market, and let’s not forget security for both buyer and seller. Cons: can’t adjust to economic change, the value doesn’t reflect the fundamentals of the economy (which are still strong according to John McCain), and provides for lose of control over the monetary policy.

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COLLECTIVE GOOD

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- Collective good – a good shared by everyone but owned by no one. In reference to the environment, it is used as a part of the Tragedy of the Commons – which everyone should know. But, as the two principles are that mutual cooperation is preferred to mutual defection, but defection is the dominant strategy, then we use up all the collective goods (like air and water) and we are all screwed.

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SUSTAINABLE DEVELOPMENT

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- Sustainable development - a pattern of resource use that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but in the indefinite future. Ties together concern for the carrying capacity of natural systems with the social challenges facing humanity. This is involved in the larger discussion of IPE of environment.

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KYOTO PROTOCOL

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- Kyoto Protocol – requires industrialized countries to reduce their greenhouse gas emissions by more than a third by 2012, or 5.2 percent below the 1990 level of emissions. Establishes legally binding commitments for the reduction of four greenhouse gases (carbon dioxide, methane, nitrous oxide, sulfur hexafluoride), and two groups of gases (hydrofluorocarbons and perfluorocarbons) produced by "Annex I" (industrialized) nations, as well as general commitments for all member countries. America said “fuck off.” Issue: the Southern nations are being pressured to join, but they want Northern nations to pay for it. If we don’t fix it, we’re fucked.

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EMISSION CREDITS

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- Emission credits – a unique feature of the Kyoto Protocol, whereby countries can buy and sell and swap emission production quotas with one another. A central authority (usually a government or international body) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emission allowance must buy credits from those who pollute less.

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HEGEMON

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- Hegemon – (1) a rich and powerful state that undertakes to organize the international political economy by setting and enforcing the “rules of the game” under which states and markets interact. Helps break the tension between freedom and security so that states can meet their international obligations without necessarily sacrificing their domestic needs. For more significance and context, see hegemonic stability theory.