Jim Mahon
Stetson b22, x2236
Wednesday 10-12 and by
appointment
POLITICAL ECONOMY 401
This course considers the
economics and politics of globalization.
It seeks to bring informed analysis to bear on important problems now
faced by policymakers in the
With respect to the major,
Political Economy 401 does three things.
First, it acquaints you with important topics and theoretical approaches
in the academic field known as "international political economy." Second, it provides you with a foundation you
will need in POEC 402 as you analyze public policy issues (even apparently
domestic ones) in this "globalizing" world. Finally, at the end of the course, it gives
you a chance to practice the skills of collective policy analysis you will
employ in the spring semester.
As the course proceeds, its
main emphasis goes from the theoretical to the practical. We begin by sampling several contemporary
approaches to international political economy, spotlighting three that will
reappear often in the course. Then, the
main part of the course covers the most important issue areas--trade, finance,
the organization of production, immigration and culture, and the global
commons. In examining the first three,
we move from economic theory to analytical political economy to case studies,
ending up each section with discussions about the role of international
organizations. In the last section of
the course we turn to particular policy issues in two weeks of research done in
smaller groups.
Requirements
and evaluation. It is essential that all reading be completed
and contemplated prior to the class meeting.
Attendance is required and classroom participation (quality, not just
quantity) accounts for 10 percent of your final grade. Four three-page papers, on each of the first
four sections of the course, count for half.
(Please note the due dates: some
on Wednesdays at
Jeffry Frieden
and
Martin's, 2000);
Michael Santoro, Pfizer: Global Protection of
Intellectual Property, Harvard
World Bank, Globalization,
Growth, and Poverty (2002).
This book, highly
recommended background reading, is on reserve at Sawyer:
Thomas Friedman, The Lexus and the Olive Tree,
revised ed. (Anchor, 2001).
For those who do not
subscribe to The Economist, the first assigned survey is also on E-reserve (click
through FRANCIS homepage). The URL’s for
others, via Infotrac, as well as the URL’s for
several other articles, are in this syllabus (and clickable via the version on
the POEC website). There are also
photocopied packets of course readings.
The first packet is available immediately, in Seeley, and the rest will
be ready in the second full week.
SCHEDULE
* = in packet, R = on reserve at Sawyer
9/10 Introduction and Overview
“Globalization and Its Critics,” Economist survey
http://www.economist.com/surveys/showsurvey.cfm?issue=20010929 (for subscribers). Non-subscribers go to E-reserve or click here: http://ereserves.williams.edu/eres/coursepage.aspx?cid=70
The password is “401.”
9/14 The “New Institutional Economics” and Public Choice
Douglass North, “Institutions and Economic
Growth: A Historical Introduction,”
article 3 in Frieden and
Paul Collier, “Economic Causes of Civil Conflict and Their Implications,” World Bank, June 2000.*
Roland Vaubel, "A Public Choice View of International Organization," in Vaubel & Willett, eds., The Political Economy of InternationalOrganizations: A Public Choice Approach (1991).*
These readings
introduce two closely related schools of political economy. Both begin from a premise that political
actors are narrowly self-interested maximizers of
some combination of power and personal wealth (the mix depends on the
circumstances and the author). In a
fundamental way, it is the economist’s approach to explaining politics. Public choice theories (recall James Buchanan
in POEC 301) apply this to analyses of voting and public finance, with most
practitioners writing about the
1.
North states that
“
2.
What, for
Collier, explains rebellion and civil war?
Does his explanation seem right for cases you are familiar with—say, the
Chinese Revolution or the U.S. Civil War?
3.
What, according
to Vaubel, does the sober eye of public choice
analysis add to our understanding of intergovernmental organizations? Can you think of any other examples where
such an approach sheds light?
9/17 Power, Dependence, and Economic Sanctions
Albert O. Hirschman, National Power and the Structure of Foreign Trade (1945), read pp. 3-12, skim 13-23, read 23-33.*
Daniel Drezner, “The Hidden Hand of Economic Coercion,” International Organization 57:3 (summer 2003).*
These readings focus on the economic exercise of power via the asymmetrical interdependence that trade relations typically create. The first reading is from Hirschman’s first book, shaped by his experiences in World War Two, and animated by the central insight (which he believed was put into practice by Hjalmar Schacht’s trade policies in the mid-1930’s, under the Nazis) that a gain from trade can be seen as that which is in the power of your trading partner to take away. This is the thread that connects the Hirschman analysis with the sanctions literature. Although the connection between trade and power is usually an implicit one (allowing us to forget it exists), economic sanctions remind us of it. The second reading is a good recent summary by an expert on this stuff (Williams PoliEc ’90) criticizing a widely cited IIE study (one that used to be assigned in this course).
1. Can you think of recent parallels to Hirschman’s description of trade and power between large and small countries? Is his argument plausible?
2. Does Hirschman’s analysis mean that powerful countries face their own tradeoff between income and power? (That is, do they have to bargain away income in order to get more influence?)
3. How does Drezner differ in method from the study by Hufbauer, Schott and Elliot (IIE, 1990) that he cites? What does his focus lead him to conclude?
4. How do Drezner’s results square with Hirschman’s analysis?
9/21 The International System
“Historical Perspectives” (introduction to section II), from Frieden and
Dani Rodrik, “How Far Will
International Economic Integration Go?,” JEP
14:1 (Winter 2000).*
Stephen D. Krasner, “State Power and the
Structure of International Trade,” in Frieden and
Stephen Brooks and William Wohlforth, “American Primacy in Perspective,” and
While the last readings focused on
economic power in bilateral relations, these consider the international system
as a whole. Yet they differ on where
they start. Rodrik
begins from open-economy macroeconomics to discuss varieties of world order and
their connection with national economic policies. Beginning from politics, Krasner’s
classic article argues that free trade requires a hegemonic power. Also using politics as the point of
departure, the articles by Brooks and Wohlforth and
by Hoffman measure the present hegemony of the
A word about the
context for these arguments.
Recalling international relations theory, “realism” broadly means that
national state power is the last word in an anarchic world, and governments are
assumed to dedicate themselves to the pursuit of this power in its various
forms. (A bilateral interstate model of
realism is at work in the readings for the last class.) “Neorealism” is
realism applied to the system as a whole, drawing conclusions about
international alignments from the pattern of relative power capabilities among
individual states. In its strongest form
it today predicts (cf. Kenneth Waltz’s recent writings) that our current
unipolar system (
1. Would you revise Rodrik’s international relations trilemma today? If so, how?
2. Does Krasner believe that we don’t need international organizations to manage international market freedom?
3. How do Brooks and Wohlforth connect the realm of international security to international economic relations? Are you persuaded by their argument?
4.
Hoffman wants globalization to take account of
objections presented by weaker countries in the international system. Why would it ever be in the
9/22 Three-page essay due at
9/24 The Economics of Trade
World Bank, GGP, chap. 1, part 1 (pp. 23-41).
“Trade,”
(introduction to section V) in Frieden and
Coughlin, Chrystal,
and Wood, "Protectionist Trade Policies," article 19 in Frieden and
SKIM Krugman, “Myths and Realities of
Francisco Rodriguez and Dani Rodrik, “Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-national Evidence” NBER Working Paper 7081 (1999). Available at http://papers.nber.org/papers/w7081.pdf
SKIM David Dollar and Aart Kraay, “Trade, Growth, and Poverty,” (2002). Available at
http://econ.worldbank.org/files/33773_TradeGrowthPovertyEJFeature.pdf
Robert E. Baldwin, “Openness and Growth: What’s the Empirical Relationship?,” NBER Working Paper 9578 (March 2003).*
These
readings pull together a variety of works on trade economics. They cover a lot of ground, though with some
overlap, which is why you may skim several of them. The World Bank chapter opens with an historical
summary of international economic relations and proceeds to argue for the
benefits of openness for development.
The Frieden and
(Sun.) 9/26 VIDEO “Made in
9/28 Domestic
Politics and Trade Policy
Bruce Ingersoll,
“Big Sugar Seeks Bailout, Gives Money to
Scot Lehigh, “Trade-Offs: Labor as We Might, China Deal Won’t Be Fair
for All,” Boston Globe,
Robert Baldwin, "The Political Economy of Trade Policy," JEconPersp, 3(4), Fall 1989, to p. 131 only.*
James Alt and Michael Gilligan,
“The Political Economy of Trading States,” article 21 in Frieden and
Richard
B. Freeman, “Are Your Wages Set in
Dani Rodrik, Has Globalization Gone Too Far? , chap. 2.*
Jeff Madrick, “Questioning Free Trade Mathematics,” NYT 3/18/04.*
Steven Greenhouse, “Employers Take a United Stand in Insisting on Labor Concessions,” NYT 7/11/03.*
Rather
than asking about the desirability of free trade, these readings are mainly
devoted to explaining why free trade, which economists regard as the obviously
best policy, has historically been the exception rather than the rule. As such, they are good examples of a kind of
political economy that looks behind policy outcomes to find their political
causes. The
The last four readings come back to the economics of trade from different perspectives. Freeman reviews the economic evidence about trade and wages and casts doubt on the importance of trade. Rodrik claims that conventional methods of measuring the impact of trade on wages are inadequate so that the impact of trade is in fact very large (Feenstra, later in the course, makes a similar move). Madrick also seeks to broaden the assessment of trade liberalization by noting that adjustment costs, borne by workers, are often underestimated. The last article looks at the threat of job loss.
4.
What is factor
price equalization and how does it relate to these arguments?
10/1 Mountain Day
10/5 Trade and Global Inequality
World Bank, GGP, chap. 1, part 2 (pp. 38-51).
Arthur MacEwan, “Free Markets, International Commerce, and Economic Development,” from Real World Globalization, seventh edition, ed. Alejandro Reuss, et al. (Dollars and Sense, 2002).*
Ha-Joon Chang, “Kicking Away the Ladder: The ‘Real’ History of Free Trade,” Foreign Policy in Focus December 2003.* (Also at http://www.fpif.org/pdf/papers/SRtrade2003.pdf)
“Convergence, Period,” The Economist
These articles focus on a question in economics that has had great importance in the political debates over globalization: what is the effect of trade on global inequality? The World Bank provides a hopeful overview. MacEwan takes up a theme you first read in the Rodrik article on economic integration, to the effect that the WTO now bans the sort of policies that led to sustained and equitable growth in east Asia (even though advocates of globalization often claim these cases as proof of the benefits of openness). Chang deepens this critique by arguing that protectionism is exactly what most of today’s developed countries practiced when first developing, and that now they want to “kick away the ladder” of infant-industry protectionism when poor countries try to use it. The Sala-I-Martin article (summarized in The Economist) says that global inequality is decreasing.
1. For the World Bank authors, what accounts for people being “left behind”? Do you agree?
2. What basic mistake does Sala-I-Martin think other analysts have made in their calculations of global inequality trends?
3. Does Sala-I-Martin’s analysis strengthen the case for openness, or the case for the egalitarian/mercantilist policies MacEwan and Chang recommend?
10/8 The
Politics of the WTO
“The WTO in Brief” and additional links at http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm
Ralph Nader and Lori Wallach, "GATT, NAFTA, and the Subversion of the Democratic Process," in Jerry Mander and Edward Goldsmith, eds., The Case Against the Global Economy (Sierra Club, 1996).*
Walden Bello, “Reforming the WTO is the Wrong Agenda,” Danaher and
Burbach, eds., Globalize This! The
World Bank, GGP, chap. 2 part 1 (pp. 53-66).
Public Citizen articles at http://www.citizen.org/trade/wto/articles.cfm?ID=10441
Guy de Jonquieres and Frances Williams,
“Top Nations Hail Deal” and “Trade Deal Marks End to Talks about Talks,” Financial Times
These
readings focus on the other big, current issue in international
trade—multilateral trade-promoting institutions such as the WTO. Beginning with the overview piece on the WTO’s website, after reading each of the critical articles
you can go back to the site to see if the arguments of the critics are
adequately answered. The Nader and Wallach piece discusses
the genesis of the WTO in outraged terms with detailed arguments about the
undemocratic nature of the agreement.
1. On the WTO website and in the writings of the critics, what theories of international politics do you see operating? Specifically, where do they see international power acting, and who wields it?
2. Consider the critics now in the spirit of positive (explanatory) political economy and our previous readings on the subject. What do they tell us about the politics of trade that helps explain why advocates of free trade would want “fast track” and a powerful WTO?
3.
In POEC 301 you read Milton Friedman saying, “if government is to exercise power, better in the county
than in the state, better in the state than in
4.
How do theories of international relations help us
understand the results of the
10/10 Three-page
essay due at
10/12 No class, Reading Period
Resources on financial-market terms and concepts:
Global Investor glossary http://www.finance-glossary.com/pages/home.htm
Bloomberg financial glossary http://www.bloomberg.com/analysis/glossary/bfglosa.htm
Shorter version http://www.lifelong-learners.com/opt/SYL/s10node1.php3#keywd:gu
10/15 Overview, History and Theory
“Money and Finance” (introduction to section IV), from Frieden and
Barry Eichengreen, “Hegemonic Stability Theories of the
International Monetary System,” article 14 in Frieden and
[optional] Thomas Friedman, The Lexus and the Olive Tree, chap. 7.R
J. Bradford DeLong, “Financial Crises in the 1890’s and the 1990’s: Must History Repeat?,” Brookings Papers on Economic Activity 2 (1999).*
“Global Finance,” Economist
survey
A Cruel Sea of Capital
Catching the Tide
Hot and Cold Running Money
The Trouble with Banks
Sudden Storms
Safety First
Shipbuilding
A Slightly Circuitous Route
Here is an overview of key problems in global finance, historically and today. Eichengreen considers whether the analysis you read by Krasner can be applied to monetary relations, too. DeLong’s work not only touches on issues we will cover (dollarization, capital controls), it also compares two periods in an attempt to discern the relative importance of capital mobility and international moral hazard in creating or aggravating crises. Compared with previous Economist surveys on this topic, the 2003 version is less defensive and, in view of the equity bubble of the late 1990’s and scholarship on information problems in asset markets, readier to acknowledge lapses from market perfection in global finance.
10/19 Crises and Contagion in Emerging Markets: Reason for Capital Controls?
David Wessel and Bob Davis, “How Global Crisis Grew Despite Efforts…,” WSJ 9/24/98.*
Frederic S. Mishkin, “Global Financial Instability,” JEP 13:4 (Fall 1999).*
James Tobin, “A Tax on International Currency Transactions,” UN Human Development Report, 1994, p. 70.*
Rupert
Cornwell, “Tobin Tax Gains Global Currency,”
Joseph Stiglitz, “Capital Market Liberalization and Exchange Rate Regimes: Risk Without Reward,” and
Sebastian Edwards, “Capital Mobility, Capital Controls, and Globalization in the 21st Century,” both from Annals of the AAPSS 579 (Jan 2002).*
Ian
Katz, “Greenback Magic?,” Business Week International
Edition,
These
readings are about the problem of contagion in world financial markets,
especially among middle-income “emerging markets,” and what to do about
it. The first two were written in the
wake of the Asian crisis of 1997-98. Mishkin’s is both an overview and a spotlight on domestic
financial weaknesses as key causes of instability in
10/22 Global Imbalances
Martin
Wolf, “A Global Market Economy Needs a Global Currency,” “
Ronald
McKinnon and Gunther Schnabl,
“The Return of Soft Dollar Pegging in
Wynne Godley, Alex Izurieta, and Genaro Zezza, “Why Net Exports Must Now Be the Motor for US Growth,” at http://www.cerf.cam.ac.uk/publications/files/USJul04.pdf
David Malpass, “Their Money, Our Strength,” WSJ 8/5/04.*
These
readings shift our focus from the global spread of crises in relatively
marginal areas of the
world financial system to current major imbalances in the core of
the system. We begin with Martin Wolf’s
series from summer 2004: considering
that this author just came out with a book called Why Globalization Works, the article titles ought to get your
attention. We then look more closely at
his argument by reading two of the articles he cites. One looks at the reasons for today’s unusual
situation in which the major international creditor countries build up balances
in the main deficit country’s currency in part because their own currencies are
little used internationally. The second
takes the main, related macro financial balances (the fisc,
the balance of payments, and net household saving), links them to projections
of output growth, and comes to alarming conclusions for the
1. Why is the issue of dollar pegging important to the problem of macro imbalance?
2.
So, is
3. Do you agree with Wolf’s call for a global currency (that is not the dollar)?
10/26 What
Role for the IMF?
Joseph Stiglitz, Globalization and its Discontents (2002), first part of chap. 8 and middle part of chap. 9 (pp. 195-206, 222-44).*
Milton Friedman, “Markets to the
Rescue,” WSJ,
Report of the International Financial Institution Advisory Commission [Meltzer Report], March 2000, Executive summary (only its first three pages, on the IMF, are relevant here).* View entire document at http://www.house.gov/jec/imf/meltzer.htm
Brad DeLong, “The Meltzer Report,” and comments on the webpage, from http://www.j-bradford-delong.net/TotW/meltzer.html *
Rodrigo de Rato, “The IMF at 60,” on IMF website: http://www.imf.org/external/np/speeches/2004/061404.htm
Kenneth Rogoff, “The IMF Strikes Back,” Foreign Policy 134 (2003)* and at http://www.imf.org/external/np/vc/2003/021003.htm; and “The Sisters at 60,” Economist 7/24/04.*
Bretton Woods Project, latest articles on IMF at http://www.brettonwoodsproject.org/institution/imf/index.shtml
Like the last section, here we finish by asking about international institutional solutions, in this case the IMF. On this there has been a lot of ink spilled in the past few years, and there are some changes afoot too. The focus of most of this is on the Fund’s role during financial crises in “emerging markets” and on the attitude of the Fund and Bank toward poorer countries generally. The excerpts from Stiglitz’s book follow up his argument against capital liberalization with a critique of the IMF. Next is Milton Friedman’s 1998 critique of Fund from a libertarian direction—his view is shared by many in the Republican party (and the Wall Street Journal), and in the same spirit is the so-called Meltzer Report (you don’t have to read the entire thing!). Brad DeLong’s short piece puts it in perspective. Also interesting are the comments on his essay—but note that they are printed in reverse chronological order. (Note also that Meltzer has been endorsed by left critics of the Fund, who advocate its abolition and ignore the free-market beliefs of its main author and majority. See, for example, Walden Bello in Focus on Trade, May 2000, http://www.focusweb.org/focus/pd/apec/fot/fot48.htm ). The last readings are reflections on the Fund at 60 from its current Managing Director, two essays by its former chief economist, and a link to one of the best organizations opposing current IMF-WB policies.
10/27 Three-page
paper due at
10/29 Changes in Corporate Structure and the Rise of “Outsourcing”
“Production” (introduction to section III), in Frieden
and
Shah Tarzi,
"Third World Governments and MNC’s,"
article 10 in Frieden and
"Big is Back: A Survey of Multinationals," The Economist, 6/24/95.*
Robert Feenstra, “Integration of Trade and Disintegration of Production in the Global Economy,” JEP 12:4 (Fall 1998).*
Kathryn
Kranhold, “
In recent years, many multinational corporations have changed their structure fundamentally, taking advantage of freer trade and capital movements to move toward global productive structures that are differentiated across countries according to labor costs and other factors. This has important implications for how we think about international economic integration. The Tarzi article gives some general background, in terms of the relative bargaining power of firms and states. The Economist survey documents this shift. It also asks about its causes and implications, both for policymakers and for managers. Feenstra notes the rise of intra-firm transactions and subcontracting, and considers what these trends mean for our thinking about the benefits and drawbacks of trade. The last article pulls it all together by looking at the price the Chinese government can now ask of global firms seeking to enter its market.
11/2 Global Firms and Rich-Country Governments: A Race to the Bottom?
Duane Swank, “Political Institutions and Welfare State Restructuring,” chap. 7 in Paul Pierson, ed., The New Politics of the Welfare State (2001).*
Byron Dorgan, “Global Shell Games,”
Vito Tanzi, “Globalization and the Future of Social Protection,” Scottish J Pol Ec 49:1 (Feb 02).*
Duane Swank, “International Capital Mobility and Taxation,” second part (pp. 244-56) of chap. 7 from Global Capital, Political Institutions, and Policy Change in Developed Welfare States (2002).*
John Plender, “Counting the Cost of Globalization” and “A Big Squeeze for Governments,” from Financial Times, 21-22 July 2004.*
These papers concern relations between firms and governments, with a spotlight on welfare states and corporate taxes. They take on the idea that social protections are being reduced as mobile capital subjects governments, now competing to welcome it, to an unrelenting “race to the bottom.” Swank’s articles take on the issues of welfare spending and taxation respectively. In between, Tanzi (a longtime tax guy at the IMF) updates his argument about globalization-enhanced “fiscal termites” that he thinks (as opposed to Swank) will eat away at the revenue foundations of the welfare state. The Dorgan piece has a similar view, as he argues for the “unitary tax” or Worldwide Combined Reporting, under which global firms would not be able to diminish their tax exposure by artificially shifting taxable streams (profits, etc.) from high-tax to low-tax jurisdictions. As he nicely points out, “transfer pricing” by MNCs often leads to absurdities. The last two articles are investigative pieces recently published by the FT.
11/5 Labor Conditions: Should Liberalization of Trade Depend on Labor Standards?
Terry Collingsworth, J. William Gould and Pharis Harvey, "Labor and Free Trade: Time for a Global New Deal," Foreign Affairs, Jan/Feb 1994.*
Jonathan Silvers, “Child Labor in
Kaushik Basu,
“Child Labor: Cause, Consequence, and
Cure,” J Econ Lit 37 (Sept 1999), sections 1-3, 6, 8-9.*
Here
is another realm in which critics of globalization fear that all wage-earners
(though some more directly than others) are subjected to downward pressure on
their compensation. The question today
is whether it is the right thing to impose labor standards globally, enforced
via trade sanctions on offending countries.
The first article answers this in the affirmative. If you are familiar with the debate (as I
assume you are), you can merely skim it, since its basic argument is referred
to in section 8 of the Basu article. However, even if one disagrees with the
proposal for global standards, one could concede that on the question of child
labor there would be more likelihood of common ground. The piece from the
11/9
Intellectual Property Rights: TRIPs as Corporate Tool?
Pick days for reaction papers
Michael
Santoro, Pfizer: Global Protection of Intellectual Property,
WTO, “Basic Introduction to TRIPS.”* View more details on provisions at http://www.wto.org/english/tratop_e/trips_e/trips_e.htm
Vandana Shiva and Radha Holla-Bhar, "Piracy by Patent: The Case of the Neem Tree," in Mander and Goldsmith, eds.*
“Patently Problematic,” Economist 9/12/02.*
Jagdish Bhagwati, “Patents and the Poor,” Financial Times 9/16/02.*
Elizabeth Becker, “Poor Nations Can Purchase Cheap Drugs under Accord,” NYT 8/31/03.*
These
readings take on the issue of intellectual property and its international
regulation, with a focus on the pharmaceutical industry. Here we come back to the WTO (its TRIPS
agreement) and the critiques of
11/10 Three-page essay due at
11/12 Immigration Economics
George Borjas, Heaven’s Door, chaps. 4-6.*
Jagdish Bhagwati, “Behind the Green Card,” A Stream of Windows, 1998, pp. 319-36.*
World Bank, GGP, chap. 2 part 3 (pp. 76-83).
This section of the course is about the ways in which culture and ter