MAJOR CONCEPTS IPEImportante:Los conceptos que Christina pidió que no tomáramos en cuenta porque no son del primer parcial son: 13. Factor specificity (Karla)31. Stolper-Samuelson (Mariana)32. Ricardo Viner (Nazim)38. State-centered approaches to trade (Rebeca) 39. Society-centered approaches to trade (Rebeca)

Favor de seguir el ejemplo (pero con más sobre las lecturas):1. Dependency theory

Definición en clase:· An analysis of relations between the “core” and the “periphery”.· Promoted Import Substitution Industrialization as an alternative to participation in the

international market. Central Dependency Scholars

- Andre Gunder FrankÞ “Development under-development”Þ Underdevelopment as a result of colonization

- Theotonio de SantosÞ Colonial dependenceÞ Financial-industrial dependenceÞ A structure of dependence

- Raul PrebischÞ United Nations Committee on Trade and Development (UNCTAD).Þ Developing country (scarce technology and capital).

Definición en Lecturas (es sólo un ejemplo, falta más información de las lecturas):Dependency theory is a structuralist perspective that highlights the relationship between what are referred to as core and peripheral countries, while calling attention to the constraints put on countries in the latter group. Con bibliografía: Balaam D. N. and Dillman B., Introduction to International Political Economy, the United States, Pearson, 2013.

1. Dependency theory (Alberto)

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Definición en claseAn analysis of relations between the “core” and the “periphery”. The core depends on raw materials of the periphery and the periphery depends on manufactured goods of the core. Due to the values traded both core and periphery states cannot change its status or role in the international economy, therefore, they’re fixed. This theorists given this realization proposed exiting the system and creating a new one in which they could self provide their goods to their population. In order to achieve this they thought of Promoted Import Substitution Industrialization as an alternative to participation in the international market. A clear example of this scholars can be found in Latin American countries in the 70’s.

Import Substitution Industrialization was based on infant Industry’s theory. One should protect specific industries (the ones that produced goods you would normally import) within your country to let them grow and permit competition in the international arena.

Central Dependency Scholars

- Andre Gunder FrankÞ “Development under-development”Þ Underdevelopment as a result of colonization

- Theotonio de SantosÞ Colonial dependenceÞ Financial-industrial dependenceÞ A structure of dependence

- Raul PrebischÞ Created United Nations Committee on Trade and Development (UNCTAD).Þ Developing country to find scarce technology and capital.

Definición en las Lecturas

A country did not thrive or falter simply because of its own national endowments. Rather progress could be attributed to the power it had to set the rules of the international economic game. Center countries or the industrialized countries defined the rules, the periphery or developing countries, were pawns in the international pursuit of profit.

Cardozo actually thought that it was possible to grow within the systems but severe anti-monopolistic international measures were needed.

ISI tools: ● SOE’s State Owned Enterprises● High tariff Walls as protectionist measures.● Export subsidies● Foreign exchange controls● Import Licensing● Industrial Incentives ● Quotas

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● Tariffs

ISI failed do to its lack of competition incentives in a globalizated economy. It promoted industries that wtihout the protection wouldn’t be able to stand by themselves.

Bibliografia: Balaam D. N. and Dillman B., Introduction to International Political Economy, the United States, Pearson, 2013.P. Franko The puzzle of Latin American Politics Rownman and Littlefield Publishers. 2007.

2. World Systems theory (Ana Padilla)3. Barriers to trade (Arturo Duque)En clase:Barriers to trade are usually attached to protectionist policies supported by the mercantilist ideology and refused by the liberal and neo liberal perspective.Trade barriers can be imposed either by taxing or applying a tariff to the movement of goods and services, or can be Non-tariff barriers. NTBs refer trade restrictions that make importation and/or exportation of a product difficult and/or costly.

● Can take various forms such as:1. Specific prohibitionsà Import bans.2. Specific conditionsà Complex regulatory environment, lengthy customs procedures,

inadequate infrastructure.3. Specific market requirementsà Employment law, various product specifications

(example: cars).After WWII the GATT was created to regulate and negotiate the diminish of tariff and non-tariff trade barriers.

Lectura:Irwin. The GATT in historical perspective.

During 1860-1913 world trade relations centered around a network of bilateral trade treaties (“nonsystem”) containing the Most favored Nation clause. This regime brought about relatively low trade barriers, along with very little trade discrimination.Certain that the “nonsystem” of the late 19th century would not be automatically resurrected after WWII, the US and the UK began preparing the ground during the ground during the early 1940s for a postwar international agreement on commercial policy to reduce trade barriers and limit discriminatory tariff preferences.

Irwin. A brief history of international trade policy

Mercantilists sought a highly interventionist agenda, using taxes on trade to manipulate the balance of trade or commodity composition of trade in favor of the home country. This strategy could never work if all nations tried to follow it simultaneously

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Smith argued that economic growth depended on specialization and the division of labor. International trade effectively increased the size of the market for any given country, allowed for more refined specialization, created an international division of labor, and thereby benefited all countries by increasing the world´s productivity and output. . Smith made a powerful case that government promotion of trade and government restriction of trade were unwise and harmful. He changed the analysis of trade policy and established the presumption that free trade was the best policy.

4. Comparative advantage v.s absolute advantage (Brianda)Definición en clase:Absolute advantage states simply, if one country can produce a product at a lower cost than another country, then it would make sense to trade. The comparative advantage concept takes into account the opportunity cost. In his famous example, Ricardo discussed trade between Portugal and England.• His model encompassed the following assumptionso Both countries produced cloth and wine.o Labor is the sole input of productiono Labor productivity varies between industries and countriesAlthough Portugal had an absolute advantage in both goods, trade was beneficial due to the comparative advantage of England in producing cloth. Hence, according to Ricardo, England would nevertheless benefit from free trade with Portugal. The lesson is that to identify a country’s comparative advantage, a comparison of production costs across countries is necessary.

Definición en lecturasDILMAN AND BALAAM (Chapter on liberalism)For Smith, if a foreign country can supply us with a commodity cheaper than we ourselves can make it, better bout of them with some part of the produce of our industry, employed in a war in which we have some advantage. Smith, thus, generally opposed most state restrictions on free international market. → Absolute advantage

IRWIN → Against the Tide

For Smith, the underlying cause of the foreign industry superiority was irrelevant. As long as the one country has an advantage in the production of a good and the other country wants it, it will always be more advantageous for the latter rather to buy from the former than to make.

IRWIN → Trade Under Fire

Smith: “What is prudence in the conduct of every family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country . . . will not thereby

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be diminished . . . but only left to find out the way in which it can be employed with the greatest advantage. It is certainly not employed to the greatest advantage, when it is thus directed towards an object which it can buy cheaper than it can make.” Smith believed that the benefits of trade went well beyond this simple arbitrage exchange of what is abundant in the home market for what is abundant in the world market. The wealth of any society depends upon the division of labor. The division of labor, the degree to which individuals specialize in certain tasks, enhances productivity. And productivity, the ability to produce more goods with the same resources, is the basis for rising living standards.

Ricardo asked, what if one country was the most efficient at producing everything? Would that country still benefit from trade? Would disadvantaged countries find themselves unable to trade at all? To answer these questions, Ricardo arrived at a brilliant deduction that became known as the theory of comparative advantage. COmparative advantage implies that a country could find it advantageous to import some goods even if it could produce them more efficiently than other countries. According to Ricardo, international trade is not driven by the absolute costs of production, but by the opportunity costs of production. The country most efficient at producing textiles might be even more effi- cient than other countries at producing other goods, such as shoes. In that case, the country would be best served by directing its labor to producing shoes, in which its margin of productive advantage is even greater than in textiles.

5. Industrial Revolution (Carla) En clase: September 3:

● Polanyi´s puzzle: Why did the prolonged period of relative peace and prosperity in Europe (1815-1914) suddenly end?

o According to Polanyi, the answer to the puzzle goes back to the Industrial Revolution. It gave rise to a number of English thinkers who developed the theory of market liberalism.

§ Market liberalism´s core belief (acc. To Polanyi): Human society should be subordinated to self-regulating markets.

§ Polanyi argues that England´s leading role as the “workshop of the world ” resulted in the idea of a self-regulating market becoming the organizing principle of the world economy. The societal response was the concerted effort to protect society from the market. In turn, effort to protect society produced conflicts.

§ Polanyi argues that creating a fully self-regulating market economy is impossible because it requires that human beings and the natural environment be turned into pure commodities. This will ensure that destruction of both society and the natural environment. His argument rests on his distinction between “real” and “fictitious” commodities.

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§ “Embededness” = economy is not autonomous; rather it is subordinate to politics, religion and social relations.

September 8:

● Britain´s power declined just before WWI (1914-1918). The industrial Revolution had spread; countries were catching up while Britain experienced relative decline.

En lecturas: K. Polanyi. The Great Transformation: The Political and Economic Origins of Our Time (ch. 3). During the Industrial Revolution (XIXth century) there was an improvement in tools of production, accompanied by a catastrophic dislocation of the lives of the common people. Economic liberalism misread the history of the Industrial Revolution because it insisted on judging social events from the economic viewpoint. The Industrial Revolution was merely the beginning of a revolution as extreme and radical as ever inflamed the minds of sectarians, but the new creed was utterly materialistic and believed that all human problems could be resolved given an unlimited amount of material commodities. The Industrial Revolution should be defined as the establishment of market economy. The impact of this institution cannot be fully grasped unless the impact of the machine on a commercial society is realized. Once elaborate machines and plants were used for production in a commercial society, the idea of a self-regulating market system was bound to take shape. Production with the help of specialized, elaborate, expensive tools and plants can be fitted into such a society only by making it incidental (consequential) to buying and selling. The merchant will procure the goods in a different way, not by buying them ready-made, but by purchasing the necessary labor and raw material. The two put together, plus some waiting, amount to the new product. Since elaborate machines are expensive, they do not pay unless large amounts of goods are produced. For the merchant all factors involved must be on sale: they must be available in the needed quantities to anybody who is prepared to pay for them. Unless this condition is fulfilled, production with the help of specialized machines is too risky. In an agricultural society such conditions would not naturally be given; they would have to be created. All transactions are turned into money transactions. All incomes must derive from the sale of something or other, and whatever the actual source of a person's income, it must be regarded as resulting from sale. The most startling peculiarity of the system lies in the fact that, once it is established, it must be allowed to function without outside interference. Profits are not any more

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guaranteed, and the merchant must make his profits on the market. Prices must be allowed to regulate themselves. Such a self-regulating system of markets is what we mean by a market economy. What the merchant needs is raw materials and labor: nature and man. Machine production in a commercial society involves the transformation of the natural and human substance of society into commodities. Nothing less will serve the purpose: obviously, the dislocation caused by such devices must disjoint man's relationships and threaten his natural habitat with annihilation. J. Ravenhill. Global Political Economy (ch. 1). The era of mercantilism did not bring a notable increase in overall global wealth. Despite the striking extension of the global market during the seventeenth and eighteenth centuries, the majority of commerce continued to be conducted within individual localities until the Industrial Revolution. The introduction of steam power revolutionized transportation, both internally and internationally. And in the second half of the XIXth century, further technological advances contributed to a “shrinking” of the world and to a deepening of the international division of labor. The value of world exports grew tenfold between 1820 and 1870. 6. Corn Laws (Daniela)Definición en clase:

- Really protectionist measures, especially with grains.[1]- They were important because most academics think that it was because of their repeal

that GB started to practice free trade(In a more friendly way: “You must untax the people´s bread!” - Cobden)→ Lecturas

J. Ravenhil (ed.). Global Political Economy. 4 th ed. Oxford University Press

Chapter 5 “The Evolution of the Global Trade Regime by G.R. Winham” pp. 77, 111- The Corn Laws were perhaps the best known example of a political clash over trade

policy that fits nicely with Stolper – Samuelson theorem.[2]- They were created after the revival of foreign trade after the Napoleonic Warsè Restricted importation of various grains like wheat, rye, barley and oats, as well as beans and

peas. (those grains were defended by the landowning elite)- Obviously not everybody was happy with this so the idea of a reform started with

manufactures, especially textile producers that were anxious to reduce labor costs. So they created the “Anti Corn Law League” in 1838

- Richard Cobden became the league´s most famous advocate. He convinced working and middle classes to push the parliament for a new reform. Within this group was the Chartist Reform Movement which organized a bigger campaign

- 1932 à Great Reform Act and the enfranchisement of voters in the large industrial center

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- This had a great impact on Tory Prime Minister, Robert Peel, he introduced a sliding scale for grain duties in 1841 and then reduce them in 1842 – 1844 in an attempt to reduce the food crisis.

- He failed.- In 1845, with both support of the Radicals and Liberalist, he[3] repealed the Corn Laws

altogetherè This provided high protection to agricultural products and followed up with this action

the series of new administrative and diplomatic measures over the next two decades that put free trade into practice.1860 all protectionist duties in Britain were eliminated.

D.A. Irwin. A Brief History of International Trade Policy

- The repeal of the Corn Laws in 1846 was a crucial formative movement in the

development of the modern world order.- From that point on, Britain was committed to the path of free trade. This path in turn had

a major impact in the development of a more open and integrated world economy

[1] Most academics think this lead to the food crisis in 1844[2] Understand the Corn Laws repeal as an outcome of a struggle between the industrial and agricultural interests in Britain, through a different lens – that of hegemonic leadership à suggests that Britain was pursuing a strategy of leadership and openness in the world economy (OJO! Esto no venía en el libro. El autor no dice qué es el teorema, pero esto lo encontré en un paper de dos académicos ingleses . De todos modos, Christina dijo que el teorema no es tema del primer parcial)[3] After this the “Tories” were isolated on the trade issue in parliament

7. Frederic Hayek (Diannic)

IntroductionWhere will socialism lead us? We should endeavor to understand the forces which have created National Socialism at this time: That this will enable us to understand our enemy and the issue at stake between us. We know we are fighting for freedom to shape our life according to our own ideas.

Chapter 1 Abandoned RoadPolitical thinkers warned us that socialism means slavery and now a new kind of slavery rises and we don’t see the connection. We have moved in the direction of socialism. We are abandoning the basic individualism inherited by Montaigne, Erasmus. Individualism in the

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Renaissance meant respect for the individual man, which is the recognition of his own views and tastes as supreme in his own sphere (science, energies). Today individualism means egoism and selfishness. Growth of commerce meant men could attempt to shape their lives.Economic freedom>> free growth of economic activity. All classes did benefit from the general advance. Material comfort, security, independence, new sense of power over their own fate.Liberals>> you must understand the society, its structure to create the conditions most favorable to its growth.

2. Great utopiaSocialism meant new freedom from coercion, from necessity. The demand for new freedom was the old demand for an equal distribution of wealth. Socialism belongs to the world of utopias, the belief of attainability of freedom & equality through Marxism has forced Russia to travel towards a totalitarian state. Hitler>> socialism had killed liberalism 3 Individualism and CollectivismSocialism aims:

· Ideals of social justice, greater equality and security· Abolition of private enterprise creation of a system of planned economy· Some see socialism as an object of practical politics, others see it as a danger.Dispute on what is the best way on planning our common affairsPlanner’s argument: a central direction of all economic activity according to a single plan laying down how the resources of society should consciously directed to serve particular ends. We must centrally direct economic activity to make the distribution of income conform to current ideas of social justice. Liberal argument: Where effective competition can be created, it is a better way of guiding individual efforts. There is no coercive or arbitrary intervention of authority. Controlling prices or quantities of commodities deprives competition of its power of bringing about an effective coordination of individual efforts.Hayek:

· Effective competitive system needs an intelligently designed and continuously adjusted legal framework.

· Competition and central direction become inefficient tools if they are incomplete

· Planning and competition can be combined only by planning for competition, not by planning against competition.

· Central planning is the start of the growth of constraints on individual society.

F.A. Hayek. The Road to Serfdom. University of ChicagoPress: 50 Anv edition.

8. John Maynard Keynes (Graciela)In class:

● John Maynard Keynes (1883-1946) was a British economist

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○ Often considered the “father” of the heterodox school. Under conditions of uncertainty he proposed some government intervention.

○ Keynes was later important in terms of established the Bretton Woods Institutions○ For Keynes, the question revolved around how to “restart” the domestic economy○ Keynes proposed that the state take the lead

■ “Constructive” state intervention● This line of thinking has become known as the heterodox school

○ The heterodox school dominated domestic economies after WWII“The Keynesian Compromise”

● At the international level, we talk about the “Keynesian Compromise”○ A compromise that reconciles state and international interests

● Keynes played a key role in establishing a new international economic order (The Bretton Woods System or the Bretton Woods Institutions)

Lecturas:· Liberal with a distaste for authoritarian regimes such as communism and facism.· Keynes rejected the populist interpretation of Hayek's argument—that any increase in state

planning is the first step on the way to tyranny—but agreed with the overall view that the bounds of state intervention needed to be clearly defined for liberal democracy to remain safe.

o The economist. Keynes and Hayek: prophets for today.· John Maynard Keynes is one of the most influential political economists of the twentieth

century. He stands out in the evolution of liberalism or developing a subtle and compelling strain of liberalism called Keynesian theory of economics or Keynesianism.

· His ideas were increasingly popular in the 1930’s up through the Great Depression and WWII until the early 1970’s.

· Keynes is known for refuting some of the basic principles of economic liberalism. He believed that the great depression was evidence that the invisible hand of the market sometimes errs in catastrophic ways.

· The solution for Keynes is to combine state and market influences in a way that it still relies on the invisible hand but there´s a control from the government.

· The Keynesian compromise: Keynes was involved in the reconstruction of Western Europe after WWII. He also established the new international economic order.

o Balaam & Dillmann Chapter on liberalism

9. Neoliberal economic policies (Guillermo)

"Las politicas neoliberales fueron promovidas por Reagan y Thatcher como respuesta al

agotamiento del keynesianismo clasico para hacer frente a las necesidades del sistema

nacional"

-Se basaron mas en la ideas de Smith, von Hayek, y Friedman que en Mill y Keynes

-Estas politicas fueron una respuesta ante la negativa de poder utilizar politicas monetarias

cuando el sistema internacional funcionaba con el sistema dolar-oro, se accedió a la baja del

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gasto gubernamental y la posibilidad de no reducir sueldos por amenazas inflacionarias, sino

depreciar la moneda y aumentar las tasas de interés.

-Promete la idea de la convergencia: al cabo de la apertura de los mercados financieros, de

productos es como el mercado en el largo plazo establecerá un precio único, y por ende un

salario único, por el que todos los paises coincidiran en mismo punto.

-El avance tecnológico, es el que propicia un avance en los niveles de crecimiento de los

países.

-Se basa en la desregulación, la baja de impuestos, privatización de empresas paraestatales, la

promoción del libre mercado, de la no intervención estatal, para el saneamiento de las finanzas

públicas.

-Acompañado por la globalización, el neoliberalismo busca promover los valores en el

escenario internacional

-Una economía global integrada derramara sus beneficios netos en todas las esferas públicas.

-Críticas: Stiglitz hace referencia a que el neoliberalismo ha sido incapaz de acondicionar a los

países en desarrollo para que alcancen a los países desarrollados. Colander usa el argumento

del precio único, para establecer que no es posible la idea de la convergencia, ya que esta

propiciaria cambios en el sistema laboral estadunidense y que las presiones sociales serían tal

que no podría implementarse. Se observó en la década de los 90 que la mayoría de los países

implementaron políticas neoliberales a raíz de crisis económicas y financieras, sin embargo no

estuvieron exentos de ellas después tampoco. Friedman, habla que el modelo no contempla

externalidades como la asimetría de información o la protección medioambiental.

-La teoría neoliberal pareciera ser una ley imperfecta para el desarrollo y muchos estados

optaron por mayor intervención estatal para creación de incentivos al desarrollo tecnológico y el

crecimiento.

D.N Balaam and B. Dillman, Introduction to International Political Economy. Pearson, 2013. O Chapter on Liberalism

10. Liberalism (Ivan)Clase: Is the most influential perspective in IPE. Economic institutions and states founded and influenced by liberalism. Institutions like the WTO, IMF, WB.Two strands:

· Orthodox school (Hayek)The government should provide internal and external security. Establish essential public goods such as infrastructure. Prevent the spread of disease (public health). And establish property rights and enforce contracts.Individual rights at the center of orthodox liberalism.Economic freedom = Political freedom

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· Heterodox school (Keynes)Important for establishing Bretton Woods institutions. State intervention in case of extreme uncertainty, “constructive” state intervention Adam Smith said that trade is not a zero-sum game but a positive sum game. Protective trade instruments are inefficient because they are not competitive. If resources are allocated inefficiently, it does not maximize utility. Rationality: our behavior is purposeful and goal-oriented. We order our preferences and we pursue these preferences systematically. We are utility maximizers.Rational Choice Theory: we have perfect information and we purposely calculate the cost of our alternatives. Efficiency is the core principle of economic liberalism. The best placement of scarce resources. Lectura: Essentially, the broad term liberalism means “liberty under the law”. Liberalism focused on the side of human nature that is competitive in a constructive way and is guided by reason, not emotions. Although liberals believe that people are fundamentally self interested, the do not see this as a disadvantage because competing interests in society can engage one another constructively. This contrast with the mercantilist view, which, dwells on the side of human nature that is more aggressive, combative and suspicious.For classical economic liberals, individual freedom in the marketplace represents the best alternative to potentially abusive state power when it comes to the allocation of resources or organizing economic activity.In a capitalist economy, self-interest drives individuals to make rational choices that best serve their own needs and desires. However, it is competition that constrains and disciplines self-interest and prevents it from becoming destructive to the interests of others.When individuals are free to make their own career choice, they naturally prepare for and seek out careers or lines of employment in which they are likely to be more productive. Likewise, as economic circumstances change, labor resources will be rapidly redeployed to growing sectors of the economy as individuals take advantage of the new opportunities.Smith is clear that indeed state has some necessary and legitimate functions in society, especially to defending the country, building public works, health, enforce contracts, keep market functioning, and help to achieve individual rights. If competition is absent the invisible hand can no longer make competition work for the benefit of the society.Ricardo argued that positive-sum payoffs of trade hind together the nations of the world by a common thread of interest and intercourse.Mill acknowledges the problems created by the markets inherent inequality. He proposed that to achieve social progress, the state should take the definitive action to supplement the market. His views on education and other social policies reflect the evolution of liberalism in his time

· D.N Balaam and B. Dillman, Introduction to International Political Economy. Pearson, 2013. O Chapter on Liberalism

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11. Classical mercantilism/neo-mercantilism (Johanna)Classical Mercantilism (definición en lectura):

Mercantilism is the oldest and psychologically most deeply embeded of the three IPE perspectives. It accounts for one of the basic compulsions of all people and nation-states: to create and sustain wealth and power in order to preserve and protect the nation's security and independence from any number of real and imagined threats. Historically, classical mercantilism connoted efforts by states to promote exports and limit imports, thereby generating trade surpluses that would strengthen the nation while protecting certain groups within society.The classical mercantilist period of history is inextricably linked to the rise of modern nation-state in Europe. The practice of mercantilism gained full head of steam after the Thirty Year's War ended in 1648.

Neo-mercantilism (definición en clase):-We use the term to account for a variety of instruments to protect wealth and power. - The term “protectionism” is generally used to describe the existence of trade barriers. Neo-mercantilism (definición libro):Today, neomercantilism accounts for a more complex world marked by intensive interdependence where states use a wider variety of instruments- especially economic ones- ti protect their societies. Biografía: Balaam & Dillman, Chapter 2 Mercantilism and Structuralism.

12. Structuralism

The results of decades of neoliberalist politics are now highly visible and regrettable: financial

crises, poverty, inequality and capital accumulation in just a few hands (Kose & Ozturk 2014).

Capitalism, and in its most advanced form, imperialism, is by itself an unfair order that exploits

societies to the benefit of the few (Lenin). Structuralism is then a reaction to this economic order.

Structuralism is a theory to explain economic relations by criticizing the prevailing order.

It main features are that i) it observes economic relations from the point of view of the oppressed

and the unprivileged; ii) it addresses the importance of the underdeveloped, peripheral nations

that faced challenges extremely different from the first-world countries; iii) the main factors to

explain social reality is economics and technology (Ballam & Dillman).

The philosophical foundations of structuralism comes from Karl Marx and its concepts of

class, dialectical materialism, class struggle and class consciousness. Their narrative is as

follows: there exist a fixed amount of factors of production (capital) that is distributed in an

uneven way; just a few hands concentrate the most of them. The capitalist in order to achieve its

economic purposes (accumulation of wealth) exercises a relation of dominance to the workers

(proletariat) who are being exploited. As the dominant class, it takes over institutions, specially

the State, that reifies this relation in order for it to last for as long time as possible (Polanyi;

Balaam & Dillman; Lenin).

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For IPE, structuralism extrapolates this narrative to explain the international economic

order. Capitalist/first world/wealth accumulating countries exploit proletariat/third

world/peripheral nations extracting resources that could be either natural, manufactured or even

intellectual, reifying this relations of dominance over time (Balaam & Dillman).

Recent or contemporary readings (extensions) of structuralism come in the form of

Modern World System Theory and Dependency Theory. The first one shaped the ideas of a

world divided into core, periphery and semiperiphery according to its position in the dominance

relation between each other (Wallerstein). Dependency theory (ver el otro resumen/concepto de

este) was developed in Latin America by UNECLA (CEPAL) to explain poverty and slow

growth in the region. The main explanation comes from the dependence of primary products and

the volatility of its prices and their lack of industrialization (Franko).

The most important contribution of structuralist theory is that it let us think again about

this relations and identify the asymmetries that surround them. This could enable us to think

international economic relations differently and should empower us to denounce this unfair

system and all of its problems. To interpret the world as a series of dialectical conflict of classes

let us imagine a world with a minimal confrontation in which poverty and inequality could reach

an all time low.

Main scholars:

Marx, Lenin, Polanyi, Wallerstein, Presbich, Krugman, Stiglitz

Bibliography:

In text

13. Factor specificity (Karla)14. GATT/WTO (Mariana)Lo visto en clase :

El GATT (General Agreement on Tariffs and Trade) fue creado en 1947 y no es parte del Banco Mundial, en 1995 se convirtió en el WTO.

El GATT buscaba reducir las tarifas y fue muy exitosos en eso, sin embargo, se tenía la cuestión de cómo “disminuir” las barreras sin tarifas, las cuales no eran fáciles de identificar. El GATT es un “framework agreement with contracting parties”. Es importante mencionar que la principal diferencia entre el GATT y el WTO son los mecanismos de discusión de las resoluciones, esto provocó que el GATT fuera mucho más débil que el WTO

El artículo 35 del GATT establece que:

● No discriminación

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● Principio de la nación más favorecida → cualquier ventaja que se le dé a un parte contratante, se le dará a todas las demás partes contratantes.

● Principio del intercambio entre naciones → obliga a las partes contratantes a tratar por igual a los productores extranjeros y as los nacionales. También establece que un país “cannot discriminate vs imported products once it had cleared customs”

● Prohibition vs Quantitative y otras restricciones de no tarifa como las cuotas, en este punto algunas naciones acordaron de forma voluntaria restricciones a las exportaciones para cumplir con esta regla.

● Principio de Reciprocidad → se hizo como protección cuando los países en desarrollo se empezaron a unir, es muy cuestionable, ya que es difícil que exista reciprocidad entre partes muy desiguales.

Principales Funciones del GATT● Facilitar negociaciones ● Poner estándares y reglas de transparencia ● Establecer normas ● Administrar los acuerdos de tratados El GATT/ WTO organizaron sus negociaciones en lo que hoy son 8 bargaining rounds, y un noveno que se encuentra en curso. Los 7 primeros trataron sobre la legalidad del GATT y sus tarifas. Entre los rounds se encuentran; Genera (1947), Uruguay (1986- 1993), Kennedy (1963 - 1967), Tokyo (1973 - 1979) y Doha (2001)

Retos más grandes de la transición GATT – WTO.

● Pasar de una base de consenso del GATT a una base de reglas con el WTO.● Complicación de las negociaciones a causa del aumento de miembros y de la

diversidad. ● La reducción de las barreras de no tarifa es mucho más complicado que reducir las

tarifas ● La participación de la sociedad civil. ● Expandir la agenda global trae nuevos conflictos como lo son el intercambio de

servicios, la propiedad intelectual o medidas de inversión. Lecturas : repiten exactamente lo mismo que se vio en clase pero amplían la parte del WTO.

There are a number of ways of looking at the World Trade Organization. It is an organization for trade opening. It is a forum for governments to negotiate trade agreements. It is a place for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place where member governments try to sort out the trade problems they face with each other

The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTO’s current work comes from the 1986–94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the ‘Doha Development Agenda’ launched in 2001.

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Where countries have faced trade barriers and wanted them lowered, the negotiations have helped to open markets for trade. But the WTO in some circumstances its rules support maintaining trade

At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations. These documents provide the legal ground rules for international commerce. They are essentially contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and signed by governments, the goal is to help producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives.

What the WTO do :

● Trade negotiations→ The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions.

● Implementation and monitoring→ WTO agreements require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted.

● Dispute settlement→ Countries bring disputes to the WTO if they think their rights under the agreements are being infringed.

● Building trade capacity→ WTO agreements contain special provision for developing countries, including longer time periods to implement agreements and commitments, measures to increase their trading opportunities, and support to help them build their trade capacity, to handle disputes and to implement technical standards.

● Outreach→ The WTO maintains regular dialogue with non-governmental organizations, parliamentarians, other international organizations, the media and the general public on various aspects of the WTO and the ongoing Doha negotiations, with the aim of enhancing cooperation and increasing awareness of WTO activities.

Referencias:

● Ravenhill (ed.). Global Political Economy. 4thed. Oxford University Press. Chapter 5: The Evolution of the Global Trade Regime by G. R. Winham.

● Irwin. The GATT in Historical Perspective. The American Economic Review, Vol. 85, No. 2.

15. Bretton Woods Institutions (Nazim)Definición de clase

· The Bretton woods Conference resulted in a global economic institution.· The main objectives at Bretton Woods:

o To manage the international economyo To rebuild war-torn economies.o To avoid the disastrous events of the interwar period.

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· International institutions provide a forum for dialogue for countries. The assumption is that we can cooperate (Wilson after WWI).

· The Post WWII architecture consisted in:o The International Monetary Fund (IMF): promote short terms loans and monitor

the gold standard (The IMF coordinated). The coordinating ability of the IMF with the gold-standard helped to reduce uncertainty

o The World Bank: bank of reconstruction aiming at the time to Europe.· At the international level, liberals tend to support the establishment of strong institutions

o Liberal institutionalismo The IMF: was established for financial stabilityo The World Bank: reconstruction

Definición en libros· The commitment to multilateralism that developed in the late 1930s and during the Second

World War bore immediate fruit in the founding of the Bretton Woods multilateral financial institutions: the International Monetary Fund and the World Bank J. Ravenhill (ed). Global Political Economy. 4th ed. Oxford University Press.o Chapter 1: The Study of Political Economy by J. Ravenhill.

· The Bretton Woods Order wanted to rebuilt the international monetary and finance order.· The Breton Woods conference also established two public institutions to assume some aspects

of international lending that had previously been left to private markets: the international monetary fund (IMF) and the International Bank of reconstructions and development (IBRD, known asWorld Bank).

· The IMF was to provide short-term loans to help countries finance their temporary balance of payments deficits, thus providing deficit countries with greater breathing space than they had had under the pre-1930s international gold standard.

· The IRBD was designed to provide and encourage long-term loans for reconstruction and development after the war, a task for reconstruction and development after the war, a task that the private markets were not trusted to perform well on their own. J. Ravenhill (ed.). Global Political Economy. 4th ed. Oxford University Press.o Chapter 7: The Evolution of the International Monetary and Financial System by E.

16. Non-tariff barriers (Regina)Definición en clase: Non-tariff barriers (NTB) are restrictions that make importation and/or exportation of a product difficult and/or costly

1. Specific prohibitionsa. import bans

2. Specific conditionsa. complex regulatory environmentb. inadequate infrastructurec. lengthy customs procedures

3. Specific market requirements

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a. employment lawb. various product specifications

They are more difficult to identify and reduce than regular tariffs.

En lecturas: NTBs were addressed in the GATT’s Tokyo Round (1973-9) because “By the early 1970s chaos in the international monetary system and increasing use of non-tariff barriers in response to the surge of exports from Japan and the newly industrializing economies (NIEs) resurrected fears of trade protectionism (...) This negotiation started slowly because of the need to gather and classify enormous amounts of trade data with respect to NTBs”.

J. Ravenhill. Global Political Economy. Chapter 5: The evolution of the Global Trade Regime, pp. 119, 121. (In syllabus, Sept 8).

17. Dumping/WTO (Sofía M.)Definición en clase:The GATT was substantially weaker as an organization than the WTO today because it lacked a dispute resolution mechanism

Multilateral Trade Negotiations● The GATT/ WTO organizes their negotiations in “bargaining rounds”● Each round has aimed to reduce specific barrie to trade● To date, 8 round have been concluded and the 9th round is still ongoing (the Doha

Round)● 2001: Doha Round (The first WTO Round)● The Uruguay Round is also significant because it established the WTO

The Kennedy Round (1963-7)● The negotiations also resulted in the GATT’s “antidumping code”

Dumpling and Anti-Dumping DutiesDumping:

● Understood as selling a product to another country for less than its sale price in the exporting country

● The GATT/WTO defines dumping as exporting below the “normal” value of a product○ Determined through a comparison of the price of the product in both the

exporter’s and importer’s market○ Or through the analysis of the exporter’s costs of producing the product vs. the

sales price

En Lecturas:

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The WTO is first a forum for the negotiation of liberalization agreements. Second, it seeks to ensure that members comply with agreements, which include both monitoring and technical help. Third, it provides a mechanism for solving trade disputes between members.

The WTO brings together different groups of countries for the negotiation of large packages of trade issues.

Bibliografía: J. Ravenhill (ed.). Global Political Economy. 4th ed. Oxford University Press. 18. Orthodox economic liberals vs. heterodox economic liberals (Alberto)Nota: Este debate se generó tanto en el tema de clase “strands of liberalism” y en el tema de “schools of IPE”, La profesora hizo el comentario específico de aunque tienen los mismos nombres, son dos debates. El primer debate (Hayek V.S.Keynes) ya está explicado en esta lista en el tema 10.

“Schools of IPE”Definición en clase:Orthodox School is also called the American School and is usually associated with positivist thinking. It focus on causal relation analysis and was the first focused theory of IPE. Their most important exponents were Keohane & Nye with “Power and Interdependence” first published in 1977.The main concept introduced by them was “complex interdependence” that tried to distance itself from the realist theories of IR. It consisted on 3 main characteristics: multiple channels of cooperation within nations, absence of hierarchy among different issues of nations and diminished role of the military force. It relies heavily on statistics and applied mathematics to formulate its thesis.

Heterodox School is also called the British School, contrary to the orthodox school this school focuses on a post-positivist classical thinking. It uses Historical analysis as its main tool and was created as a response to mathematical and causal analysis. It searches an holistic approach to IPE. Its main exponent was Susan Strange who focused on a qualitative methodology.

Información de las lecturas

In addition to Keohane and Nye , Gilpin gave a contribution to the Orthodox theory (or the American School ) to mix International Politics and Economics to explain the actions of transnational corporations this was a more realistic (not realist) approach to the field. . Participation by Keohane and Nye in organizing the IO publication A magazine that helped the spread of the ideas of IPE in all universities.

“International Economics and International Relations: A Case of Mutual Neglect” by Strange in 1970 was the birth of IPE in the British School. As Keohane & Nye, she created the International Political Economy Group to stress the ideas of IPE through British scholars.

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For her,power could be understood to operate on two levels: structural and relational. “the power to shape and determine the structures of the global political economy . . . the power to decide how things will be done, the power to shape frameworks within which states relate to each other.

Bibliografía: B.J. Cohen: International Political Economy: An Intellectual History. Princeton University Press 2008. 19. Smoot-Hawley tariff (Ana Padilla)

20. Global governance (in terms of trade) (Arturo)Clase:The global governance on trade is one of the objectives of the Bretton Woods agreements. After the GATT created specifically as a contract to regulate trade negotiations, the International Trade Organization was supposed to be created by 48´. But its creation wasn't ratified by the US Congress, so it became irrelevant, because US was an preponderant actor on trade. So countries had to keep relying on the GATT as a contract, but with no institution to regulate trade, maintaining just the framework agreement. The most important article of GATT are the ones that guarantee the non discrimination: I - Most Favored Nation, means that any advantage granted to a contracting party (country) will be accorded to all other parties.This ensures no retaliation. III- National treatment principle.

21. Rent-seeking (Brianda)Definición en clase

State intervention may lead to rent seeking → asking for economic benefits that the market will not give you.According to the neo-liberal argument, sluggish growth could be attributed to “rent-seeking” pressures on the government. Government intervention in the economy was seen as the problem.

● Margaret Thatcher warned about the dangers of “rent seeking”.

Según el FMI:Rent-seeking results in reduced economic efficiency through poor allocation of resources, reduced actual wealth creation, lost government revenue and increased income inequality.

Definición en lecturas:

BALAAM AND DILLMAN (Chapter on liberalism)Adam Smith Merchants often had a disproportionate influence over the Parliament and could press their “private interests”. These special interests often solicited the power of the state to allow them to disregard competitive pressures and convince those in power that “what they wanted was identical to generate interest”. Manufacturers often easily influenced the legislature

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such that they acquired companies gained the sole right to sell products, keeping prices above the natural price.

● He supported the state exercising vigilance and enforcing competition policies to preserve competition and help the market work properly

● Smith feared rent-seeking (the manipulation of the state to rig the market in such a way as to reward powerful business interests with high prices and high profits). For Smith, absent competition, the invisible hand can no longer make competition work for the benefit of all society.

Many neoliberals argued that the state was too big and not to be trusted. Echoing Smith, they maintained that its interests reflected powerful special interests, whereas the market is neutral toll to redistribute income to those who are most efficient, hardworking and innovative. Although these policies may lead to income inequality, the benefits at the top of society will later trickle down to benefit labor and the masses.

Con bibliografía: Balaam D. N. and Dillman B., Introduction to International Political Economy, the United States, Pearson, 2013.

22. “The Keynesian Compromise” (Carla) En clase: August 25: John Maynard Keynes (1883-1946) was a British economist often considered the “father” of the heterodox school. Keynes observed the Great Depression (under economic uncertainty people will stop spending). For Keynes, the question revolves around how to “restart” the domestic economy. Keynes proposed that the state take the lead. “Constructive” (rent seeking) state intervention. This line of thinking has become known as the heterodox school. The heterodox school (because it is a new type of economic thinking, economics and political goals become one at a certain point in time) dominated domestic economies after WWII. At the international level we talk about the Keynesian Compromise. It is a compromise that reconciles state and international interests. Keynes played a key role in establishing a new international economic order: the Bretton Woods system or the Bretton Woods Institutions. En lecturas: D.N Balaam and B. Dillman. Introduction to International Political Economy. Chapter on Liberalism. In 1944 the allies met at Bretton Woods, New Hampshire. Two new institutions were created to manage the postwar economy: the IMF and the World Bank. Three years later the GATT was

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created. Keynes headed the British delegation and the institutional result reflected many of his ideas. Keynes believed that on domestic front positive government action was both useful and necessary to deal with problems the invisible hand did not solve. At the same time, he envisioned a liberal or open international system in which market forces and free-trade policies would play major roles in each state´s foreign economic policy objectives. The Keynesian compromise was the idea that management of the international economy would be conducted through peaceful cooperation of states represented in the Bretton Woods institutions based on embedded Keynesian ideas about IPE. States would work to gradually reduce their state regulatory policies so as to open their national economies as they recovered and became more competitive. The result was that domestic trade protection and capital controls became accepted exceptions to economic liberal policies in international negotiations. The Keynesian flavor of embedded liberalism—strong international markets subject to social and political restraints and regulations reflecting domestic priorities—became the mainstream IPE view in the industrialized world from the 1930s into the 1970s.

23. Embedded liberalism (Daniela)

- Power is necessary to establish regimes, but the content of the regimes are determined- Also by social purpose (norms). Fusion of power + norms lead to regimes, which ‘play a

mediating role, by providing a permissive environment for the emergence ofspecific international economic transactions’. (two independent variables, one dependent variable with more properties and variance)

- a reconciliation of market and society à domestic interventionism (it generated both long term economic performance and social protection its laissez faire

predecessor)● Lecturas:

J. RAVENHIL (ED.). GLOBAL POLITICAL ECONOMY. 4TH ED. OXFORD UNIVERSITY PRESSChapter 7: The Evolution of the International Monetary and Financial System by E. Helleinerpp. 177- It was clear that the US would emerge from the war as the dominant economic power.

Their objective was to build and sustain a more liberal and multilateral international economic order. (they wanted to avoid the repetition of events such as the Great Depression and WWII.)

- But US policy makers did not want to see a return of the classical liberal economic order, they were proposing new kinds of government interventions in domestic economic life, this what called Embedded Liberalism by Ruggie

- This was shared by policy makers in many other countries, including Keynes and his American counterparty, Harry Dexter White. Both took lead in producing detailed blueprints for the post-war international and financial system

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- At Bretton Woods, 44 delegation endorsed a final set of arguments. They agreed to peg their currency in relation to the gold content of the US Dollar, which was convertible into gold at a rate of $35 per once

24. Hegemonic stability theory (Diannic)

Definicion en clase:The hegemon has the largest share of wealth in the global economic system.

Ø U.S. Taking the leadership in the world tradeØ After WWI US emerged as the largest industrial power.Ø After WII: U.S. domestic goals: Protect and generate revenue for federal government and

isolation from Europe.Ø 1929: Stock market crashed. US intensify efforts to protect domestic producers.Ø 1930: The Smoot Hawley Tariff raised U.S. tariffs on over 20,000 imported goods to protect

American farmers.Ø 1947: General Agreement on Tariffs & Trade functions>> facilitating negotiations, setting

transparent rules and standards, establishing norms, administrating trade agreements.

Definición en lecturas: In its early form, the theory posited that hegemony, or the existence of a single dominant economic power, was both a necessary and sufficient condition for the construction and maintenance of a liberal international economy. It follows that once the hegemon began to decline, the international economy would move toward greater conflict and closure. The theory has since been refined and extended, concluding that a greater potential exists for no hegemonic international economic cooperation than was allowed for in the original formulation.

Keohane>> Hegemony as preponderance of material resources. To be hegemonic a country must have access to crucial raw materials, control major sources of capital, maintain a large market of imports and hold comparative advantages in goods with high value added, yielding high wages and profits.

Frieden, Jeffrey A. abd David A. Lake. (2009. International Political Economy: Perspectives on Global Power and Wealth.R.O. Keohane. After Hegemony: Cooperation and Discord in the World Political Economy. Princeton University Press, 1984.

25. Industrial policy (Graciela)La política industrial comprende aquellas medidas que apuntan a modificar de manera coordinada la estructura industrial por sectores (reducción de la capacidad instalada en las industrias “antiguas”, fomento de “nuevas” industrias), incidir coordinadamente en la estructura industrial a nivel regional y fomentar la competitividad de la industria.Lecturas:

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Import substitution industrialization relied on a variety of economic tools to achieve its aim. The toolbox can be broken down into three categories: active industrial policy, protective international instruments, and accommodationist fiscal and monetary policy complemented by a careful program of transnational participation.Industrial policy was anchored in the formation of state-owned enterprises (SOEs) throughout the region. Under the assumption that the state was the only able domestic actor with the resources to produce in relatively underdeveloped markets, state firms were formed in a wide range of heavy industries, including oil, petrochemicals, telecommunications, steel, and aircraft.Additional Tools of Industrial Policy: Targeted Lending, Multinational Activity, and Passive Monetary PolicyOwnership was not the only tool of industrial policy in Latin America. Industrial policy was accommodated by monetary and fiscal measures. The state provided subsidies to domestic firms, and it granted tax credits and soft credit to jump-start the national industrial motor. National development banks were formed, such as Chile’s Corporación de Fomento de la Producción (CORFO) and Brazil’s State National Development Bank (BNDE), to target investments in the economy. A national development bank has an advantage over commercial lenders in planning strategic investment projects. As a state bank, it has a longer return horizon and is able to be active in more risky sectors because bottom-line profits are not the objective. Key industries such as machinery, automobiles, shipbuilding, and telephones were targeted as central to industrial growth. In Mexico, the Law of New and Necessary Industries provided select tax exemptions to promote growth in a limited number of unrepresented but critical sectors in the economy.

· Form state-owned firms· Form mixed economic enterprises—part state, part private· Require government purchases from national firms· Require foreign firms to establish joint ventures· Pressure foreign firms to increase local content

● P. Franko The Puzzle of Latin American politics. Rowman and LIttlefield Publishers, 2007 (3rd ed.)

26. Lenin/Imperialism (Guillermo)“Imperialismo es la fase monopólica del capitalismo”

-La teoria imperialista tiene 5 puntos principales:

1) La concentración de la producción y del capital ha generado monopolios que dominan el

sistema económico, contrario a los supuestos del capitalismo de la libre competencia

2) la creacion de una oligarquía financiera, basada en el capital financiero por la unión de la

clase banquera e industrial.

3) la importancia de la exportación de capital a diferencia de la exportación de productos como

instrumento de control.

4) la formación de empresas transnacionales monopolistas

5) la división del mundo por los poderes capitalistas

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-Su teoria ha sido modificada muchas veces porque no existe un marco historico vasto de este

tipo de paises, la teoria de la dependencia ha sido mas estudiada en el caso de las teorias

estructuralistas. Una de las mas fuertes criticas es que la Union Sovietica por un lado cumple

con este modelo y es un pais comunista. Y por otro lado se ve a la teoria de lenin como una

justificacion para que las teorias marxistas apliquen a la URSS, con el fundamento de que el

capitalismo ha llegado a su ultima instancia y debe ser el estado bolchevique aquel que

detenga su crecimiento. En realidad Marx penso sus teorias para paises industrializados y

desarrollados, no para una Rusia semi feudal y sub desarrollada.

27. Most-favored nations (MFN) clause (Ivan)Under the most-favored nation principle, a government is obliged to grant to any trading partner with which it has signed an agreement treatment equivalent to the best (most preferred) it offers to any of its partners. For example, if France had a trade treaty with Germany in which it had reduced its tariffs on imports of German steel to 8 per cent, it would be obliged, under the most-favoured nation principle, if it signed a trade treaty with the United States, to reduce its tariffs on imports of US steel also to 8 per cent. The MFN principle is the foundation of non-discrimination in international trade, and is often asserted to be the “cornerstone” of the post-1945 trade regime. The MFN principle makes a significant contribution to depoliticizing trade relations because:

1. Countries are obliged to give equivalent treatment to all trading partners, regardless of their economic power.

2. Countries cannot discriminate in their treatment of the trade of certain partners simply because they do not like the political complexion or policies of the governments of these countries.The MFN principle was introduced into the trade agreements of the 1930s and incorporated as Article I of the GATT in 1947. It required GATT Contracting Parties to extend to all signatories the benefits of any agreement that it might reach with any other country (that is the most-favoured nation) in the GATT.Non-discrimination introduced the problem of free riding, where a country might take unreciprocated benefits from a lowering of tariffs by other countries, but this was regarded as a lesser problem than that that caused by overtly discriminatory tariff policies. The overall purpose of MFN and non-discrimination was to create a unified multilateral trading system, and to prevent the international trade system from degenerating into a Balkanized system of regional preferences. J. Ravenhill (ed). Global Political Economy. 4th ed. Oxford University Press.o Chapter 1: The Study of Political Economy by J. Ravenhill.o Chapter 5: The Evolution of the Global Trade Regime by G. R. Winham

28. The WTO’s dispute settlement mechanism (Johanna)

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To understand the WTO, it is necessary to examine important legal elements drawn from the WTO Agreement and the Dispute Settlement Understanding (DSU). The WTO was vested with legal personality, which the GATT did not have.The practice of dispute settlement was begun on a customary basis under the GATT, and certain procedures, such as the establishment of adjudicatory panels to hear cases. The WTOs DSU improved the system in a number of ways:

● An Appellate Body was established to improve the consistency of legal decision-making.● The coverage of dispute settlement was extended to all areas of the Uruguay ROund

Agreement, removes the competition that previously existed between differing dispute settlement mechanisms.

● The DTU makes it obligatory for members engaged in a dispute to use the WTO system and no resort to unilateral measures.

In the GATT, a dispute settlement system developed by customary practice, but in the WTO it was mandated by international agreement in the form of the DSU, and included in the Uruguay Round Agreements. The DSU is a particularly powerful form of international dispute settlement, and the management of this system has created political controversy among members of the WTO.WTO statistics indicated that, in slightly more than five years of operation, there had been some 193 member complaints on 151 distinct trade issues. Approximately half of the complaints are settled or dropped in the consultation phase that precedes formal dispute settlement. Once a case is formally engaged, it proceeds to the three-person panel comprising trade experts for a legal decision and then, if requested, it will continue to the Appellate Body on appeal. Once a decision has been reached, the next issue is implementation. In the WTO, countries are legally obliged to accept and implement a negative dispute settlement decision, and it is possible for an injured party to take retaliatory action, even though such an action is counterproductive from the standpoint of liberalizing the trade regime, in that it erects further barriers to trade.

J. Ravenhill (ed.) Global Political Economy. 4th ed. Oxford University Press. The Evolution of the Global Trade Regime by G.R. Winham. Chapter 5.

29. Reciprocity/nondiscrimination (Julio)

The principles of reciprocity and nondiscrimination are the pillars of world trade institutions

from GATT to WTO. Reciprocity is best understood as the rule of international commerce which

states that when one country lowers its protection rates, she expects the same concession from its

trading partner. The idea behind this is that these mutual changes in trade policy bring about

equal changes in import volumes across trading partners. The other principle, nondiscrimination,

is a separate norm, under which a government agrees that any tariff applied to the exports of a

given product from one trading partner will apply equally to the exports of that product from all

other trading partners. It is also known as the principle of the Most Favored Nation (MFN)

(Class).

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The function of both norms are that mutual changes in trade policy conforming to

reciprocity will stabilize the terms of trade, and that MFN tariffs will ensure that all countries can

trade on the same terms (face the same set of exporter prices). Together, these properties serve to

neutralize the terms-of-trade motives for trade policy intervention (Class).

Its roots could be traced back to the Reciprocal Trade Agreement Act of 1934, which

accepted that setting tariff rates could no longer be exclusively a unilateral policy by a state, but,

rather, was a bilateral matter to be settled through negotiation. However, it was not until after

WWII that with USA as the hegemonic power that pushed for liberalization, multilateralism and

a legal approach to international trade relations that this principles were regarded as necessary

for a new economic order (Winham in Ravenhill).

Both principles were considered since the proposal of the International Trade

Organization. When it failed, they were transferred to the legal framework that was to shape the

General Agreement on Tariffs and Trade (GATT) of 1947. The GATT rules were a mechanism

to ensure that countries that reduced protection by lowering tariffs did not reinstitute that

protection through other measures (Irwin).

The GATT rules are contained in the 35 articles of the General Agreement. Article I and

III contain the principle of non discrimination. Article I is known as the MFN clause which states

that a country cannot discriminate externally; while Article III states that a country cannot

discriminate internally between domestic and imported products (Class).

Reciprocity is mentioned in Article XXVIII. It establishes the methodology adopted by

the GATT for reducing trade restrictions. Tariff negotiation must be conducted on a reciprocal

and mutually advantageous basis, meaning that every country should be treated equally (Class).

The mechanism, in a positive sense, means that during negotiations countries must seek a

“balance of concession” in the sense that they cut tariffs reciprocally. In a negative sense, it

means that when one country increases previously bound tariffs, the affected one can withdraw

substantially equivalent concessions (important for the dispute settlement mechanism) (Ossa

2009).

The reciprocity principle still is a guiding beacon for GATT/WTO. However, it came

under scrutiny when developing countries started to join because it was highly questionable

whether the equal treatment of “unequal partners” could be considered reciprocal. Legal

provisions were made to mitigate the obligations of GATT membership or developing countries

through the concept of special and differential treatment (Class-WTO).

30. The Uruguay Round (Karla)

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En clase:URUGUAY ROUND (1986-1993)Two main points: creation of WTO and incorporation of developing countries.

· Tariffs· Non-tariff measures· Trading rules· Services· Intellectual property rights· Textiles and clothing· Agriculture· Dispute settlement· Establishment of the WTO

En lecturas:The Uruguay Round negotiation was launched at a GATT ministerial meeting in Punta del Este Uruguay, in September 1986. It was a difficult path because the previous GATT multilateral negotiation had made considerable progress in reducing protectionism from non-tariff barriers. Pressure began to build up shortly after 1979 to expand the GATT regime to include new issues, such as services, investment, and intellectual property. Developing countries resisted efforts by developed countries to establish a new GATT negotiation following the Tokyo Round. The US argued that a new negotiation was necessary to make the GATT relevant to a changing world economy. In 1982 a GATT ministerial meeting was convened to consider this possibility. There was a sharp resistance, particularly from developing countries that were overwhelmed by the global debt crisis and mainly concerned to expand traditional exports to developed countries to service debt obligations to the IMF, Western governments and private banks. The 1982 ministerial meeting was a failure for the proponents. Nonetheless, the meeting did establish important work programs that generated the data needed for future negotiation. The most dramatic part of the lead-up to the Uruguay Round negotiation was when Americans and the Indians agreed that the session would launch negotiations on a range of issues, including services, but that negotiations on services would be undertaken in a separate structure from those on goods (esto provoca que disminuyan las posibilidades de que los países desarrollados puedan forzar el equilibrio entre los servicios y los temas tradicionales de negociación). The agenda of the Uruguay Round comprised fifteen negotiation groups arranged in four principal categories:

1) Market access: it included the areas of agriculture and textiles.2) Reform of GATT rules.3) Measures to strengthen the GATT as an institution.4) New issues: services, investment and intellectual property. They were included in order to

make the GATT more relevant to developments in the world economy and to respond to strong pressures coming from industry in developing countries.

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ServicesIt is important to remember that by the 1980s, services were over half of the Gross Domestic Product of developed countries!! For the GATT, the incorporation of services was not a straightforward matter. Services are not goods, which were the focus of GATT rules. Nevertheless, services can include processes as widely differentiated as engineering consulting, financial intermediation, tourism or legal advice. Therefore, the GATT stopped visualizing services as ‘non-traded goods’ and services became recognized as an integral part of the international economy. In order to accomplish this, the first task for the negotiators at the Uruguay Round was to develop a common database on which substantive decisions could be later made. Secondly, a code of principles (General Agreement on Trade in Services, or GATS) would have to be negotiated to provide for a standard of treatment between countries of trade in services. Finally, the code of principles would have to be applied to specific sectors of services and trade.

InvestmentInvestment was included because by the 1980s it had become apparent that investment was interchangeable with trade. Also, trade liberalization might be less valuable in stimulating international economic exchanges unless it is accompanied by the liberalization of investment regimes. In the Uruguay Round, the negotiation of a multilateral investment agreement eventually proved to be an unreachable goal and the agreement that was reached on Trade-Related Investment Measures (TRIMs) dealt only with a small proportion of the issues raised in the negotiation.

Intellectual PropertyIn the case of intellectual property, Trade-Related aspects of Intellectual Property Rights (TRIPs) grant state protection to producers of new ideas. Negotiations in the Uruguay Round began by addressing the problem of counterfeit goods in international trade, but developed countries quickly pressed for a broader negotiation over patents and copyrights. The controversy over the TRIPs Agreement continued as a mainstay of WTO politics, as developing countries saw intellectual property rights as a mechanism by which developed countries could maintain a competitive edge relative to countries that lacked a sophisticated technological infrastructure.

It formally concluded with official signatures at the Marrakesh Ministerial Meeting in April 1994. It produced a wide range of agreements integrated under a common legal system. The World Trade Organization system is contained in the Marrakesh Agreement, establishing the World Trade Organization and the Dispute Settlement Understanding (DSU). The WTO agreement established the WTO as an international organization and ensured that all agreements negotiated at the Uruguay Round were accepted as a single undertaking, thus increasing the legal integration of the WTO trade regime. The dispute settlement system established by the DSU was also intended to apply to all areas of the Uruguay Round Agreements; hence it is an integral part of the architecture of the new WTO system.

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Why is the Uruguay Round important?The WTO and the Uruguay Round Agreements provided for clearer rules on trade and reduced the fragmentation and inconsistency that had existed between various GATT-sponsored agreements. Externally, the WTO reinforced the role of trade in international economic relations and it permitted trade concerns to be represented more fully in relations with the World Bank and the International Monetary Fund. The creation of the WTO represented institutional progress because the WTO is a formally constituted international organization and not like the GATT, which was mainly a contact regarding trade rules between countries.The various agreements reached at the Uruguay Round greatly expanded the rules of the international system of trade. The issue of trade was brought up for the first time along with old issues such as agriculture and textiles. There was a reduction of protectionism in two sectors that had for a long time resisted the progression towards a more liberal world trade regime.The Uruguay Round Agreements were accepted by the developing countries engaged in the negotiation, and represented the most far-reaching commitments those countries had made in the international trade regime. The Uruguay Round concluded at a time when many developing countries were undergoing substantial liberalization, and the confluence of change in the developing world and the deepening of the multilateral regime will engage trade more fully in the progress towards international development. The Uruguay Round Agreements represented a further step towards a system based on rules rather than power in international trade. The agreements advanced the rules-based nature of trade relations between countries, and thereby increased the economic security of smaller and middle-sized countries in their relations with larger powers. The agreements created an obligation for countries to adjudicate an issue if a trading partner seeks this recourse. Conversely countries are obligated not to use unilateral trade sanctions as an alternative to multilateral dispute settlement actions under the WTO. Both provisions were intended to increase the prospects that countries, regardless of their size and power, would be equal before the law in trade disputes.

Results of GATT Negotiations 1960-1964

Negotiation Number of countries

Results

Dillon Round 1960-1961 26 - Average tariff cut of 10% on $4.9 bn of trade.

Kennedy Round 1963-1967 62 - Average tariff cut of 35% on $40 bn of trade.- Anti-dumping code.

Tokyo Round 1973-1979 102 - Average tariff out of 35% on more than $100 bn of trade.- Six codes dealing with non-tariff measures, plus aircraft code.

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- Revision of GATT articles for developing countries.

Uruguay Round 1986-1994 128 - Average tariff cut of 39% on $3.7 tr of trade.- Twelve Agreements (including Agriculture, Textiles, Subsidies, Safeguards).- New issues: Agreements on Trade in Services (GATS) and Trade-Related Aspects of Intellectual Property Rights (TRIPs).- Dispute Settlement Understanding (DSU).- Creation of WTO, new legal footing for the multilateral trade regime.

John Ravenhill. Global Political Economy. Oxford University Press, 2014.

31. Stolper-Samuelson (Mariana)32. Ricardo-Viner (Nazim)

33. Capital mobility vs capital controls (Regina)En clase: Complexity of globalization: increase in the mobility of goods and capital

En lecturas:The transition from pegged exchange rates to floating exchange rates in 1973 was a consequence of the rise of international capital mobility. (Primera lectura del 24 de sept, Ch. 5 Eichengreen)

The change in international financial flows has been even more dramatic: the fraction of countries with a liberalized financial system has risen threefold over the past 50 years. Asmore countries have embraced the benefits of permitting the free movement of capital, international financial flows have increased markedly.

M.A. Kose and E.O. Ozturk. A world of change (In syllabus, August 11). Governments continued to erect barriers to the movement of goods in the second part of the nineteenth century, but capital and people moved relatively freely across the globe, their mobility facilitated by developments in transportation and communication. (Ravenhill, chapter 1, page 9.)

Neoliberals have insisted that the new technologies of communications and transportation make it both inevitable and desirable that the world economy be tightly integrated through expanded trade and capital flows. (...) Systematic efforts of neoliberals to dismantle restraints on trade and capital flows and to reduce governmental "interference" in the organization of economic life.

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Globalization has only the Golden Straitjacket. If your country has not been fitted for one, it will be soon. Friedman goes on to say that the "golden straitjacket" requires shrinking the state, removing restrictions on trade and capital movements, and deregulating capital markets.

(Polanyi introduction. August 27 in the syllabus).

Exchange-rate stability, capital mobility, and national policy autonomy are incompatible. Together these 3 values form a kind of “unholy trinity” that operates regularly to erode collective commitments to monetary collaboration.

(Frieden and Lake, The triad and the unholy trinity. Sept 24 in syllabus)

34. Fixed exchange rates (Sofía M.)Definición en clase:What are exchange rates, and why do they matter?

● The exchange rate is the price of a national currency relative to other national currencies● When a currency becomes more valuable relative it appreciate its value

A fixed exchanged means that it is actually fixed to something. We see this with the classical gold standard. For example, currency A is fixed to X amount of gold.

A pegged rate means that a target rate is set to another currency and it will be allowed to vary within the band. Ex: currency A is allowed to vary +/- say 2% in relations to currency B.

Both aim for stability though. A peg is more flexible than a fixed system

En Lecturas:Fixed rate of exchange worked to support the simultaneous circulation of gold and silver.

Pegged rates were viable for the first quarter-century after World War II, the argument goes, because of the limited mobility of financial capital, and the subsequent shift to floating rates was an inevitable consequence of increasing capital flows.

The growth of highly liquid international financial markets in which the scale of transactions dwarfed official international reserves made it all but impossible to carry out orderly adjustments of currency pegs. Not only could discussion before the fact excite the markets and provoke unmanageable capital flows, but the act of devaluation, following obligatory denials, could damage the authorities’ reputation for defending the peg. Thus, at the same time that pegged exchange rates became more costly to maintain, they became more difficult to adjust. The shift to floating was the inevitable consequence.

The problem with this story, it will be evident, is that international capital mobility was also high before World War I, yet this did not prevent the successful operation of pegged exchange rates under the classical gold standard. Even a glance back at history reveals that changes in the

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extent of capital mobility do not by themselves constitute an adequate explanation for the shift from pegged to floating rates.

What was critical for the maintenance of pegged exchange rates was protection for governments from pressure to trade exchange rate stability for other goals.

The priority attached by central banks to defending the pegged exchange rates of the gold standard remained basically unchallenged. Governments were therefore free to take whatever steps were needed to defend their currency pegs.

A monetary authority constitutionally required to peg the exchange rate was insulated from political pressure to do otherwise and enjoyed the confidence of the markets.

Hardening the peg: tome toward monetary union. Nothwihstanding detours, this was the avenue pursued by the members of the European Community. In 1991 they adopted a plan to establish a European Central Bank (ECB) to assume control of their monetary policies, irrevocably peg their exchange rates, and replace their national monies with a single European currency. Whether other regions will emulate their example remains to be seen. What is clear is that informally pegged or pegged-but-adjustable exchange rates are no longer a feasible option. In most cases, the only alternative to monetary union has become more freely floating rates.

Bibliografía: B. Eichengreen. Globalizing Capital: A History of the International Monetary System. Princeton University Press, 2008.

35. Floating exchange rates (Lourdes)Lo visto en clase:The international monetary regime changed to “floating exchange rates” on 1970s when Nixon chooses to get off of the “modified gold standard” because of the inflatory pressure that caused insecurity and shock waves.

● Floating exchange rates are function of supply and demand● Stability isn´t relevant, there is currency speculation.

In the same time, the European Union started raising. They sought currency stability to maximize money security. Having the same goal, the individual participation of each state increased, creating unified stability.

● Under this type of regime, the challenge for each country is to maintain international stability without affecting their own internal policies.

Lo visto en las lecturas:Since the collapse of the Bretton Woods system, effort to reconstruct a system of pegged but adjustable exchange rates failed repeatedly. Capital mobility increased the pressure on weak-currency countries seeking to defend their pegs. Growing numbers of governments found themselves forced to float their currencies.

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Floating exchange rates in the 1970s

How did the transition occurred?● Officials, especially those of organizations like the IMF that were heavily committed to

the old system, did not jump willingly; they had to be pushed. While the Europeans and Japanese hoped for the restoration of par values, the United States, having endured repeated attacks on the dollar, was inclined to continue floating.

● The members of the IMF then groped toward the Second Amendment to the Articles of Agreement, which legalized floating and eliminated the special role of gold. It obligated countries to promote stable exchange rates by fostering orderly economic conditions and authorizing the IMF to oversee the policies of its members.

● There was no consensus forecast of the behavior of floating exchange rates. Some believed that the demise of par values removed the problem of one-way-bets and persistent misalignments. The contrary view was that the world was about to enter a dangerous era of financial turmoil.

What were the results?● At first, it seemed that the pessimists would be proven rights. The dollar depreciated by

30% at the first 6 months of floating. The yen and the sterling were also undervalued.● During 1970s, the governments intervened in the currency markets and there was

some willingness to adjust monetary and fiscal policies with the exchange rate in mind (unlike 1980s). Intervention was on both sides of the market: it was used to support weak currencies and to limit the appreciation of strong ones.

● The governments of USA and Germany worked to control the depreciation of the dollar, but in 1977, responding to expectations of accelerating USA inflation provoked by the Carter administration´s policies, the dollar´s depreciation resumed

● Cooperative domestic policy adjustments may have been too modest to stabilize exchange rates, but they prevented the major currencies from diverging further.

So, how did the government reconcile domestic policy objectives with the imperatives of exchange rate stabilization?

● In all countries that participated in the Bonn summit, there was a powerful faction that favored domestic policy changes needed to stabilize exchange rates.

● Where conflict occurred, governments resorted to capital controls to mitigate the trade-off between domestic policy autonomy and currency stability.

Readers should not come away with the idea that the 1970s were copacetic. With the transition to floating, real as well as nominal exchange rates became more volatile than before. But problems were not as severe as those that arose with the dollar´s dramatic misalignment in the 1980s.

● The difference in the 1970s was more concentrated in intervention, more extensive use of capital controls, and greater willingness to adapt policies to the imperatives of foreign-exchange markets.

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Floating exchange rates in the 1980sThree events transformed the international monetary environment at the end of the 1970s:

1. Advent of the European Monetary System2. Shift in the USA policies3. Shift in the Japanese policies

SHIFT IN THE JAPANESE POLICIES: Few nations had been more committed than Japan to exchange market intervention. In 1973 the yen was allowed to float and intervention was used to hold the currency within a narrow trading range. But with the first oil shock, the exchange rate was permitted to fluctuate more.

● This transition to a more flexible policy has important implications for the international monetary system.

● By the 1970s, with the growth of the Japanese economy, the level of the yen had become an issue of concern to other countries. The behavior of the dollar/yen rate came to resemble that of the dollar/deutsche rate.

SHIFT IN THE USA POLICIES: The USA also gravitated toward greater exchange rate flexibility. The Reagan administration followed with cuts in personal income taxes. The budget deficit widened and interest rates rose. Foreign capital was attracted to the USA by higher interest rates, pushing the currency further.

● The dollar´s appreciation in 1983-85 highlighted the need for cooperative adjustments of macroeconomic policies to counter misalignments.

● The dollar rose further to an extent that was not explained by interest rates and macroeconomic fundamentals. This movement, interpreted as a speculative bubble, eroded the Reagan administration´s resistance to foreign exchange-market intervention.

● For Reagan, congressional protectionism threatened its agenda of deregulation and economic liberalization; for the Japanese and European it jeopardized the access to the American market à The five governments issued a joint statement of desirability of an “orderly appreciation of the non-dollar currencies” and their readiness to cooperate to attain it (This is the Plaza communiqué).

Cooperation and intervention in fact played a role in halting the dollar´s rise. Once it began falling, the dollar depreciated rapidly.

● The IMF played a surprisingly small role in these developments. The IMF is portrayed as a mechanism for applying sanctions and rewards to encourage countries to follow cooperative agreements. In practices, the IMF was an unattractive venue in which to conduct negotiations.

● George Bush and Bill Clinton displayed little readiness to adjust policies to stop the dollar´s fall. There was little domestic opposition to the dollar´s decline. Why? Because an overvalued currency (dollar in mid 1980s) imposes to producers of traded goods a problem to compete; but an undervalued currency (dollar in mid 1990s) imposes only modest costs, as consumer experience higher inflation and import prices.

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By 1992 the low level of the dollar had become a huge problem for Japan (profits of producers were squeezed) and for Europe (commitments to support the maintenance of pegged rates persisted).

The experience of developing countriesWhen Europe “came out” of the crisis of 1992, flexible exchange rates rose in industrialized countries. The same trend was evident in the developing world, although it was slower in coming, because floating was a challenge as disturbances could result in high levels of exchange rate volatility and disrupt resource allocation.

How did the transition of developing countries to floating exchange rates occur?

1. The vast majority of developing countries had pegged their currencies being the shelter of capital controls. But pegging proved increasingly difficult to reconcile with the effort to liberalize financial markets. Developing countries had resorted to import substitution policies after WW2.

2. In Latin America, countries suffered from the depression of 1930s and the lesson drawn was the need to insulate from the international market. Tariffs and capital controls were employed. Price controls, marketing boards, and financial restrictions were used to guide domestic development.

3. With time, however, interventionist policy was increasingly captured by special-interest groups. Trade and lending picked up, and the exhaustion of easy growth opportunities placed a premium on the flexibility afforded by the price system. In 1960s, developing countries shifted from import substitution and financial repression to export promotion and market liberalization.

But the consequences of liberalization were not the same as the ones on industrialized countries:

1. International financial flows became more difficult to control2. International capital movements grew, making their management more troublesome.3. It became difficult to resist the pressure to allow currency to appreciate when capital surged

in or to let the exchange rate depreciate to facilitate adjustment when capital flowed out.

The diversity of developing-country experience spawned a debate about the efficacy of alternative policies. Countries that stayed with pegged rates enjoyed low inflation rates, unlike countries that maintained flexible-rates and those that shifted to floating rates. An exchange rate peg will be particularly appealing to governments seeking to bring high inflation under control. It is not surprising that pegging the exchange rate has been an integral element of stabilization programs in the developing world.

Currency board is a great option to avoid the dilemma of pegged exchange rates (inflation takes time to decline, which leads to overvaluation).

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Currency board is when a country adopts a parliamentary statute or constitutional amendment requiring the central bank to peg the currency to hat of a trading partner. This should halt inflation and minimize problems of overvaluation.

The resemblance of currency boards and the gold standard is striking. The weakness of the currency board system is also the same as under the gold standard: limited scope for lender of last resort intervention. Currency board reflects a decision to sacrifice flexibility for credibility. The rigidity that is its strength, is also its weakness. Currency board works on some countries and fails in others.

ConclusionCountries who found themselves forced to float their currencies liked the circumstance not a bit.

● Developing economies with thin financial markets found it difficult to endure the effects of volatile exchange rates swings.

● Currency fluctuations disrupted the efforts of European Community members to forge an integrated European market.

● Even the USA, Germany, and Japan lost faith in the ability of the market to drive their bilateral exchange rates to appropriate levels in the absence of foreign exchange-market intervention.

This dissatisfaction with freely floating exchange rates prompted a variety of partial measures to limit currency fluctuations. The main measures were: European Snake of 1970s, European Monetary System, and the Plaza-Louvre regime of coordinated intervention.

● But these limited measures could not succeed in a world of unlimited capital mobility.B. Eichengreen. Globalizing Capital: A History of the International Monetary System. Princeton University Press, 2008. Chapter 5: After Bretton Woods, pgs.134-184

36. The classical gold standard (Rebeca)

Lo visto en clase:

- Definition: A fixed exchange rate monetary system that predominated between the years of 1870 and 1914. It linked the value of currencies to the price of gold.

- Its main goal was: to create and maintain stability in international trade.- Its problems were that: a) the gold standard was relatively inflexible and b) national

governments gave up autonomy at home since they were not able to freely use monetary policy to adjust the economy.

- Its main supported was: the UK.

Lo visto en las lecturas:

ON MONETARY SYSTEMS

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The international monetary system is “the glue that keeps the international system together” (Eichengreen, 2008, Introduction). It plays a vital role in IPE since it:- Provides stability to foreign exchange markets- Eliminates BOP problems- Permits credits during shocks (Eichengreen, 2008, Introduction)Since the XIX century, the system has gone through various changes.The first was the collapse of the gold standard during the inter-war years. This system had worked perfectly well pre-1914.Capital markets explain the development of all monetary systems, including the gold standard.Capital flows were facilitated in the beginning by the gold standard, “a fixed exchange regime with almost global reach”. (Ravenhill, Ch.7 by E. Helleiner)

ON THE GOLD STANDARD I. ORIGINS OF THE GOLD STANDARD (Eichengreen, 2008, Ch.3)At the start of the XIX century, countries were on bimetallic standards (both gold and silver coins circulated). Only the UK was on the gold standard. But the simultaneous circulation of gold and silver was not easy, and arbitrage often occurred. Large movements of arbitrage stripped counties of the metal underpriced at the moment. With no more of that metal to release, the domestic monetary system no longer provided a floor to support its price.This happened in the UK, where a) silver was underpriced and b) Brazilian gold production rose lowering its price. Silver coins went out of circulation and UK adopted the gold standard due to convenience.Then, industrialization happened. Suddenly, the UK was the world’s leading industrial and commercial power.Portugal, which had strong relations with the UK, was the first to follow the UK in adopting the gold standard.During the Franco-Prussian war, many countries in continental Europe suspended convertibility. The UK appeared as an island of monetary stability.Germany, Europe’s second industrial power, tipped the balance. It went on the gold standard after the war since inconvertible paper currency circulated in the place of silver. The silver standard was of no advantage to them. Hence, the newly created mark was to be based on gold. After Portugal and Germany, network externalities were responsible for the widespread adoption of the gold standard. II. HOW DID THE GOLD STANDARD WORK?The best explanation is David Hume’s his ‘price-specie flow’ model.Premise: the gold standard is self-regulating.Assumptions: only gold currency circulates, which means exports are paid in gold and imports must be paid with gold.Argument: David Hume argued that trade imbalances, like trade deficits, were self-correcting.Imagine a country – country A -- that exports a lot and gets its payments in gold. Gold inflow raises rent, which results in inflation. Inflation pushes up the exchange rate, which makes importing from country A more expensive. Exports go down. Imports however, go up, due to

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inflation making domestic goods more expensive. And if imports are now cheaper, then gold will flow out of the country correcting inflation.A country running a trade deficit – country B -- imports more than it exports. Importing means that gold is flowing out of the country, which means a lowering of domestic prices. This lowering of domestic prices also lowers the exchange rate, making domestic goods more attractive to foreigners. The expected rise in exports that flows from this will correct country B’s deficit. (Esto en azul no lo copien literal, hice un resumen de lo que dice Eichengreen)Hume did not take into account, however, that most money was not gold coins but banknotes. Banks had to simulate the automatic adjustments of the gold standard by following the ‘rules of the game’. A trade deficit was thus corrected by tightening the money supply. However, governments did not always follow the rules of the game, and so, the gold-standard was not really self-regulating. (Ravenhill, Ch.7 by E.Helleiner)(For a period of time, the Cunliffe version of Hume’s model extended upon Hume’s findings by assuming that both gold and paper currency were used. The mechanism was the same, only that the model explained that trade imbalances were corrected through changes in the money supply.) (Eichengreen, 2008, Ch.3) III. THE COLLAPSE OF THE GOLD STANDARDThere are two main explanations for the collapse of the gold standard: 1) the one from hegemonic stability theory and 2) the one that looks into the process of democratization.

Pre-1914, the global order was financially and monetarily integrated, due to a) currency unions and b) imperial currency blocs.This did not last though. The first signs of disintegration came during WWI. Cross border financial flows were diminished and countries abandoned the gold standard to let their currencies float against each other.After WWI, the UK and the US led the efforts to restore the gold standard. They were successful in the beginning. In the 1920s, capital flows were resumed as many countries re-adopted the gold standard.But in the 1930s, the financial crisis led economies to abandon the gold standard again. Capital flows were limited, mainly because of capital controls (government regulation on cross-border financial movements). (Ravenhill, Ch.7 by E. Helleiner) (Eichengreen, 2008, Ch.3)In the 1930s, currencies fluctuated considerably and so governments put in place convertibility restrictions. Convertibility restrictions were to prevent the national currency from being converted to foreign currency.

Hegemonic stability theory tells us that the gold standard fell because of the UK’s decline as hegemon. Before 1914, the UK was the world’s biggest creditor and the sterling was the most trusted currency. The UK helped:

a)with global payment imbalances by exporting capital (lending), andb)with stabilization of markets through the Bank of England, which acted as lender-of-last-resort.

The UK stopped being the hegemon after 1914. It lost the ability to be a leader.

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The US was the new hegemon (biggest creditor, the dollar was the most trusted currency), but it was not willing to be. Mainly because of a) isolationism and b) the conflict between international and domestic economic interests. Unlike England, the US:

a)did not export capital (no more lending after its economy began to slow down, which caused BOP crises on many countries that depended on US loans and which were then made worse when the US increased tariffs with the Smoot-Hawley Act).b)did not act as lender-of-last-resort. (Ravenhill, Ch.7 by E. Helleiner)

Now, many people and scholars disagree with hegemonic stability theory. To them, the collapse of the gold standard was not due to changes in the relationship between states, but what was happening within the states. There was an important shift in government: it was no longer believed that monetary policy should be used to a fixed exchange rate between the national currency and gold. The shift was due to democratization making domestic demands more relevant. Things like preventing unemployment became more important than ensuring convertibility to gold. (Ravenhill, Ch.7 by E. Helleiner)According to Eichengreen, the world went from pegged exchange rates to floating ones due to unmanageable capital flows that threatened the central banks’ ability to maintain pegs. The problem is that high capital flows were also a characteristics of the gold standard which is clearly based in fixed exchange rates. In the XIX Century world, if politicians were given the option between protecting the exchange rate or ensuring full employment and social well-being, they would have opted for the former. This is obviously not true for the post XIX century world.Today, governments will subordinate currency stability for other domestic goals due, precisely, to democratization, which consisted in the beginning of the XX C of:

- universal male suffrage- the rise of trade unions- and parliamentary labor parties politizacing monetary and fiscal policy- the welfare state

All of this contributed to the shift from classical liberalism in the XIX C to embedded liberalism in the XX century. (Eichengreen, 2008, Ch.3)

Since there was no more governmental commitment to maintain fixed exchange rates (no more commitment to the ‘rules of the game’), the self-regulating character of the gold standard broke down. (Ravenhill, Ch.7 by E. Helleiner)Along with democratization, the Great Depression led countries to escape the discipline of the gold standard. Governments used depreciation to promote exports and alleviate the pain from the great depression. (Ravenhill, Ch.7 by E. Helleiner)

37. The modified gold standard (Claudia)

Definición en clase:Also known as The Bretton Woods System (1944-1973), it was the international monetary system established after WWII to overcome the chaos caused by both world wars. It was based

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on the classical gold standard hoping it would bring great economic growth, experienced before WWI.Main goal: stability and some flexibility. Band created, not a completely fixed exchange rates. Commitment of the US and trust in the USD is necessary for the system to work.

Lectura (Eichengreen ch. 4):

Three major modifications were made to the classical gold standard in order to adapt to the new postwar context:

Pegged exchange rates became adjustable.· Controls were permitted to limit international capital flows.

· The International Monetary Fund (IMF) was created to monitor national economic policies and extend balance-of-payments financing to countries at risk.

These innovations were developed to avoid the major worries experienced during the interwar era: The first one eliminated balance-of-payments deficits without the deflationary increases in central bank discount rates. The second was designed to avert the threat posed by volatile capital flows. The third’s objective was to sanction governments responsible destabilizing the international system and compensate countries that were adversely affected.

Operating a system of pegged exchange rates between convertible currencies required credit to finance imbalances, as the Bretton Woods Agreements (BWA) had recognized. The Bretton Woods System, like the classical gold standard, was responsible for generating its own liquidity; governments and central banks supplemented their gold serves with foreign exchange. Given the hegemonic position of the US and America’s ample gold hoard, the BWA directed the US to declare a par value against gold while permitting other countries to declare par values against the dollar. Hence, the system remained dependent on dollars for its incremental liquidity needs.

Problems:The de Gaulle problem: The system grew less symmetric as the dollar solidified its status as the leading reserve currency.The Triffin dilemma: Accumulating dollar reserves was attractive only as long as there was no question about their convertibility into gold. This made the system dynamically unstable.

Due to the lack of adjustment capacity of the USD as European and Japanese economies grew, Nixon administration suspended the commitment to provide gold to official foreign holders of dollars in 1971. It imposed a 10% surcharge on merchandise imports to pressure other countries into revaluing to prevent the devaluation of the USD. At the Smithsonian Conference in Washington, the USD devalued, the rest of the major currencies were revalued, and fluctuation bands were widened. A second devaluation of USD in 1973 resumed the flight from the dollar and European economies jointly floated their currencies upward, establishing the end of The Bretton Woods monetary system.

38. State-centered approaches to trade (Rebeca)

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39. Society-centered approaches to trade (Rebeca)

,

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