international political economy

Question 1

global financial & economic crises

Answer 1

• beginning in 2008, many of world’s richest countries underwent series of financial & economic crises;
• produced massive unemployment, huge losses in wealth, & need for intense international co-operation & bailouts of banking system (govn’ts providing funds to troubled banks & financial institutions to prevent their collapse)
• in 2011-12, situation in Europe was particularly bad (eurozone crisis);
• caused by very thing that was credited for its stability & prosperity;
• economic integration = process by which countries remove barriers to trade, invest, & move of goods, capital, & people among them

Question 2

international political economy (IPE)

Answer 2

• relatively new area of international politics (est. 1970s)
• studies interaction between politics & economics + states & markets in international system
• recognizes that domestic & international actors & processes continuously interact

Question 3

IPE history

Answer 3

• historically states have depended on their economic capabilities to develop power & influence in other forms
• primary actors are not just states
• since 1945, fundamental shift in power & influence away from states & toward private financial actors (banks, securities firms)

Question 4

liberalism perspective of IPE

Answer 4

• free market economy, increased individual freedom, progress in form of increased wealth (things get better when people are getting more money & are richer)
• concerned with international co-operation between states (esp. in matters of trade)
• less govn’t involvement in economy so market has more say in how things like distribution, competition, & prices work

Question 5

marxism perspective of IPE

Answer 5

• views international capitalist economy as tools of oppression where controllers of capital exploit labouring classes
• wealthy powerful states exploit poorer weaker states
• analyzes unequal conditions of international economy & studying exploitation
• focus on understanding injustices & inequalities inherent in international system to motivate people to advocate for reform

Question 6

nationalism perspective of IPE

Answer 6

• sees international economy as arena in which states are involved in constant battle for survival & supremacy
• international economic relations viewed in competitive light;
• states strive to surpass each other, not only in levels of productivity, growth, & power + also in benefits that each gains from economic intercourse (access to goods & services)
• calls for expanded role of states in managing their external economic relations to maximize their own interests & benefits

Question 7

economic interdependence

Answer 7

• IPE assumes interdependence of states in global economy
• mutual but not necessarily equal dependence between states (can take economic, political, environmental, or security form)
• always implied that actions & policies taken in one nation’s political or economic system will affect other states
• good example is close economic relationship between Canada & US
• but interdependence can be bilateral, regional or between group of states

Question 8

international economic co-operation

Answer 8

• post wwII, states strove to deepen economic links with one another
• growth of interdependence led to new international organizations (IO) & agreements
• IOs encourage states to cooperate in areas of trade, loans, investment, & finance

Question 9

the world trading system

Answer 9

• trade has more than economic affects
• international trade = often credited with creating employment, increasing consumer choice, introducing new ideas & cultural ideals, & contributing to economic efficiency
• however, international trade is also historically divisive issue (can destroy jobs in uncompetitive economies & industries)

Question 10

trade protection

Answer 10

• within world trading system, there can be demands for implementing trade protection measures;
• designed to restrict imports & promote domestic production by making it more difficult or expensive for foreign goods to enter domestic market
• tendency of countries to safeguard their own industries or economic sectors by using tools like tariffs (taxes imposed by govn’t on imported good), quotas, or other trade & investment laws

Question 11

controversy of international trade

Answer 11

• contributes to spread of dominant cultures at expense of traditional values & norms (people typically prefer goods & brands associated with Western culture & can push aside locally made products)
• traditional cultures & economic models become unattractive, particularly to young people

Question 12

growth of trade since 1846

Answer 12

• in wealth of nations (1776), Adam smith urged free trade & minimal role for state
• argued that free trade brought benefits in terms of efficiency, cost, & division of labour
• pressure from British industrialists caused govn’t to revoke Corn Laws

Question 13

Corn Laws

Answer 13

• restricted importation of grain (particularly wheat) into England
• intended to protect domestic agricultural producers + keep prices high through tariffs & quotas on imported grain
• highly controversial as they benefited wealthy landowners & farmers but raised food prices for consumers (particularly the poor)
• abolition of laws in 1846 opened British agricultural trade
• other states followed which led to dramatic growth in levels of world trade

Question 14

Britain growth of trade since 1846

Answer 14

• since Britain had big economy compared to other states, it didn’t need to charge high taxes on imports
• was not expensive for Britain to keep this policy
• British navy was largest & could make sure sea trade routes stay open
• investment in railway systems helped moved goods across land
• Britain’s strong economy & navy led to lots of international trade but slowed down during wwI & didn’t pick up again til after wwII

Question 15

US after wwII

Answer 15

• end of wwII = emergence of US as economic & military superpower
• helped shaped international economic system through creation of institutions & organizations aimed at international economic management

Question 16

GATT’s purpose

Answer 16

• 1947-95, goal of promoting international trade by reducing tariffs & other trade barriers among member countries
• meant to promote values (fairness & openness in trade) which are still held today, especially in US & its allies
• not all states benefited + communist states not included
• developing states could not compete on same level (created UN conference on trade and development)
• GATT ‘renewed’ through several rounds of negotiation until creation of world trade org

Question 17

the general agreement on tariffs & trade (GATT) principles

Answer 17

• multilateralism = making decisions together with all members & considering what’s best for everyone
• reciprocity = opening up trade would be beneficial for all parties concerned
• non-discrimination = all members should get the same benefits from each other
• free trade = efficiency, prosperity, & peace would be promoted

Question 18

world trade organization

Answer 18

• created in 1995 as forum for promoting free trade between nations in goods & services
• Uruguay round (1986-94) = longest period of trade negotiations & led to WTO
• unlike GATT, WTO is recognized like other major economic institutions (like IMF) & has process for resolving disputes

Question 19

dispute resolution

Answer 19

• process by which trading disagreements between member states can be resolved by impartial tribunal (neutral legal body that is unbiased & free from any influence or prejudice)
• thus preventing such disputes from becoming too political or controversial

Question 20

the G20

Answer 20

• formed by WTO ministerial conference in 2003
• led by five important LDCs (China, Brazil, India, Mexico, South Africa)
• serves as platform to discuss WTO negotiations + prevent agreements that go against their interests
• big issue is agriculture subsidies (financial assistance) in developed states which damage competitiveness of developing countries’ agricultural producers = gives unfair advantage to farmers in rich countries, making it difficult for farmers in LDCs to compete in global market
• ultimate failure of Doha Round talks (series of negotiations conducted by WTO in 2008), largely because US & Europe did not want to give up their agricultural subsidies

Question 21

aftermath of 2008 Global Financial Crisis

Answer 21

• US & Europe had little enthusiasm for further trade liberalization (economic uncertainty & trade imbalances)
• future & stability of WTO organization are in question
• trump threatened to pull US out of WTO
• China & India (major players in WTO) have both played role in delaying or defeating negotiations & agreements
• inadequate number of judges in WTO undermines organization’s capacity to resolve disputes

Question 22

present & future challenges for trade

Answer 22

• many LDCS are asking WTO for better privileges to help grow spur growth in their economies
• link between trade & environmental issues remains vital area for research & political action
• biggest challenges lie in classic question of struggle for power

Question 23

emergence of regional free trade bodies: challenge for trade

Answer 23

• particularly in Europe & North America, certain regions are coming together to make agreements that allow them to trade more easily with each other
• country’s in the EU & NAFTA/CUSMA have shown distinct tendency to trade more with each other (trend that some see as threatening international trade)

Question 24

conflict between two regions: challenge for trade

Answer 24

• Europeans typically support larger role for govn’t in economy + prioritize political & social issues over free trade
• generally, US has pushed for reduced role for govn’t
• Canadian liberalism falls somewhere in between with more moderate stance than in Europe

Question 25

rise of countries as major economies & trading nations: challenge for trade

Answer 25

• as China, India, Mexico, & Brazil continue to grow in power & try to establish their place in WTO, we are likely to see increased tension & rivalry in trade

Question 26

international financial & monetary system

Answer 26

• set of rules, institutions, & agreements governing flow of money in international system (comparing worth of currencies + sorting payments & debts between countries)
• money & finance have always been central to development of international economy
• health & stability of two systems have always been intertwined

Question 27

international monetary system

Answer 27

• for countries to do business together, they must have global currency or internationally agreed upon rules dictating how much each country’s money is worth compared to others
• most often the second (two types);
• fixed exchange rate system = states agree on set values for their currencies in terms of other national currencies
• floating exchange rate system = values of currencies are decided by market, based on supply & demand

Question 28

international financial system

Answer 28

• means by which capital & investment are moved between different countries
• made up of financial transactions between states, international financial institutions (ex; IMF), banks, & other private financial entities
• level of control govn’ts have over international finance has changed over the years
• badly functioning financial system compromises economy efficiency & restrains economic growth
• emerged more recently as a result of modern financial globalization and integration

Question 29

the Bretton woods system

Answer 29

• economic planners who attended conference (esp. US & UK) were determined to avoid mistakes between two world wars
• believed too much focus on country’s economy & competition between states led to wwII
• aim was promoting free trade & preventing another financial crisis
• saw solution as creating fixed exchange rates between currencies + putting strict rules on private banks & other financial institutions

Question 30

two new institutions

Answer 30

• Bretton woods system led to;
• International Monetary Fund (IMF) = oversees how money moves between countries, keeps fixed exchange rates in check, & lends money to states experiencing payment difficulties
• The International Bank for Reconstruction and Development (World Bank) = provides funding for reconstruction of Europe after destruction of WWII + for programs supporting economic development in developing countries
• developed after wwII

Question 31

Bretton woods system, after 1945

Answer 31

• private finance mostly stayed within each country’s borders, while international finance was dominated by IMF, World Bank, Marshall Plan, & later govn’t-to-govn’t loans in the form of bilateral aid
• Marshall Plan = US government loan designed to help the devastated countries of Western Europe after wwII
• bilateral aid = military or development assistance given by one country to another

Question 32

end of Bretton woods

Answer 32

• August 1971, president Richard Nixon announced US would no longer use fixed exchange rates
• new setup, sometimes called non-system since it didn’t have clear rules for deciding how much different currencies are worth compared to each other
• even before 1971, private finance was starting to move away from Bretton Woods rules
• European banks found ways around their country’s regulations by lending money in different currencies
• US private banks gradually expanded operations outside national markets in response to growth of multinational companies (businesses that operate in multiple countries) & need for more money

Question 33

after Bretton woods

Answer 33

• technological advances (esp. in communications) made it easier to send information & money internationally
• in 1980s & 90s, Western govn’ts began removing regulations restricting foreign competition in their financial markets & those limiting activities of banks/other financial actors
• removal of rules on finance matched both liberal ideology & economic goals of leading states, like US & UK
• by late 20th century, major national financial entities such as London, New York, and Tokyo were competing with each other to attract financial business

Question 34

Latin American debt crisis beginning

Answer 34

• after Bretton woods system ended, banks in advanced industrialized countries started investing their money in developing countries
• they saw chance to make big profits since these countries were growing quickly and were willing to pay high interest rates for loans compared to borrowers in developed markets
• Latin America benefitted most from this trend in 1970s (flow of loans reached US$150-200 billion by 1983)
• however, much of loans were wasted on projects that didn’t make economic sense & corruption was a problem

Question 35

during Latin American debt crisis

Answer 35

• 1982, Mexico announced it was not able to make interest payments on its debt + Brazil followed in 1986
• debt crisis began; banks refused to lend further money, which deepened crisis
• IMF tried to bring together countries that owed money & banks that lent it, but they could only come up with temporary solutions between 1982-89
• 1989, US Treasury Secretary Nicholas Brady proposed plan to reduce the debt (offered a longterm solution)

Question 36

international finance & late 1990s crisis

Answer 36

• era after Latin American debt crisis; increased size & mobility of international capital + billions of dollars could be withdrawn from national economy in hours
• 1994, Mexican govn’t devalued național currency (peso) causing Mexican & foreign investors to pull money out of country
• “first financial crisis of 21st century” since it involved millions of investors & immediate capital fight
• followed 3 years later by similar crisis in Thailand, Indonesia, & South Korea
• 1998; Russia, Brazi, Argentina

Question 37

global financial crisis, 2008

Answer 37

• most severe financial crisis since stock market crash of 1929
• triggered by US housing crisis in 2008, where people who didn’t meet usual requirements for mortgages (known as “sub-prime” borrowers) started to miss payments
• interdependence of global finance system meant effects spread widely
• solving crisis meant central banks from major countries injected huge amount of money into system, emergency loans given to banks, & there was international cooperation among the world’s leading powers to coordinate economic and financial policies

Question 38

effects of global financial crisis

Answer 38

• recession caused loss of hundreds of thousands of jobs + negative economic growth for first time since 1945
• slow recovery began in 2010, but crisis remained in other aspects;
• unemployment, national debt issues, reduced investments
• crisis caused analysts & policy-makers to rethink commitment to liberal, free market policies & ideas
  govn’ts increasingly turned to regulation of financial markets & capitalism
• Canada = avoided significant crisis due to centrally regulated banking system (including mortgage lending)

Question 39

economic regionalism

Answer 39

• in recent years, has been global trend towards economic development based on geographic regions (economic regionalism)
• instead of pursuing global integration, more regions are seeking localized economic partnerships
• including APEC, NAFTA, CUSMA, EU

Question 40

oil & oil prices

Answer 40

• price of oil hugely affects world economy
• until 1970s, price controlled largely by seven sisters;
• major oil companies (Esso, Royal Dutch Shell, British Petroleum, Mobil, Chevron, Gulf, and Texaco)
• OPEC (Organization of the Petroleum Exporting Countries), new org. formed in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, & Venezuela, quadrupled price of oil in 1973

Question 41

oil shock

Answer 41

• next major price rise in 1979-80, caused “oil shock”
• effect on international political economy was huge
• OPEC states became major players in global economy, esp. Saudi Arabia
• many OPEC states began earning more from oil than they could spend on their own economic development & infrastructure
• deposited this money into international banks
• much of this money was loaned to developing countries & contributed to the debt crisis of 1980s
• oil prices fell & remained low between early 1980s and late 1990s, high prices returned by 2007

Question 42

oil shock recovery

Answer 42

• as economic growth recovers and demand continues, should expect high oil prices to continue
• issue that may affect long-term oil prices are possibility of alternative sources of energy
  (wind, solar, and biofuels)
• renewable & clean energy sources are vital for sustainable development to become possible on global scale
• discovery of shale gas reserves in recent years has gained attention;
• controversial extraction process (fracking)
• Canada & US have moved toward large-scale production of shale gas

Question 43

multinational corporations (MNCs)

Answer 43

• concern over how much power multinational corporations (MNCs) have over govn’ts of LDCs
• MNCs often negotiate special deals for their investments, getting tax breaks & cheap access to workers and materials
• MNCs are accused of engaging in political activities within host states designed to manipulate democratic process to profit their own political & economic profits
• also accused of acting like agents for their home countries in foreign lands