IPE and development

Question 1

IPE focus

Answer 1

• efficient allocation focus – how are resources allocated to achieve the most efficient outcome? – primarily looked through markets
• greater focus on distribution rather than efficiency
• how are power and wealth related in the allocation of scarce resources?

Question 2

Origins of IPE

Answer 2

Origins

• 1700s-1800s: political economy studied e.g. Adam Smith, David Ricardo, Karl Marx
• 1870s: Marginal Revolution, separation of the study of economics and politics began
  
  • focus on rational actor individuals and choices made in face of scarcity – involving a trade-off with cost-benefit analysis made based on marginal utility
• 1970s: neoclassical economics, separation continued with increased dominance, shaping academic discourse
  
  • focused on role of markets on determining prices, quantities and income distribution – ability to allocate resources in their most efficient distribution
  • markets: socially embedded determined by social, political, religious or cultural practices – due to participants being people – subsequently economic issues often stem from other issues in society
  • Susan Strange (1970): argued there had been a case of mutual neglect between politics and economics, and scholars then increasingly studied the politics of global economic governance
    
    • in period of relative quietness of this period, there were no theoretical explanations for this
  • field of IPE was ‘born’ subsequently

Question 3

IPE as heterodox discipline

Answer 3

• not a single approach or set of approaches – by definition interdisciplinary
• main approaches: statism, liberalism, critical
• core assumptions
  
  • political and economic domains cannot be separated
  • political interaction is one of the principal means through which the economic structures of the market are established and in turn transformed e.g. GFC handling, negative gearing
  • intimate connection between the domestic and international levels of analysis and the two cannot be meaningfully separated

Question 4

History of the global economy

Answer 4

pre-1914 economy

• emerged late 15^th – early 16^th centuries: infant world economy
• via competition among European monarchs to amass wealth (and power) by extending their markets through the building of empires
• during this time wealth meant political power
• much of the world became enmeshed in the European economy e.g. suppliers of natural resources and luxury goods
• extension of European power created global economic ties

Industrial revolution

• facilitated the movement of goods, people and ideas
• with technological progress saw the expansion of the global market, increased trade, increased capital flows however little shift in pattern of trade
• tariffs implemented at high levels
• opened people up to being affected by events occurring in other countries
• new settlements saw millions of people migrate, along with substantial capital flows to finance the building of the colonies
• gold standard: prices of currencies were fixed in value to a specific amount of gold, created certainty for cross-border trade and finance flows, only formal process developed during this time

Inter-war period

• WWI: brought era of unprecedented growth in economic interdependence to an end with the devastation of European economies
• gold standard collapsed: due to speculative attack on the pound, which led to other countries following suite and rejecting or suspending the gold standard
• 4 September 1929: factors facilitated Great Depression – longest and most severe period of economic depression of the 20^th century, income taxes and profits plummeted, unemployment spiked, states increased protectionist measures leading to international trade dropping almost as much as 50%

Post-war recovery – Bretton Woods Agreement (embedded liberalism)

• greater collaboration between states to facilitate international economic cooperation
• 1944: Bretton Woods agreement, economic multilateralism, states committed to developing institutions to facilitate global trade and finance
• International Monetary Fund and World Bank (International Bank for Reconstruction and Development) established
• parties agreed to the dollar-gold standard, established system of stability and certainty encouraging trade
• embedded with compromise; states would open up economy to international trade and finance while being able to achieve domestic economic goals
• brought about unprecedented economic growth but also increased global inequality

1970s recession

• Nixon shock: pressure on USD prompted Nixon to end dollar-gold standard established with agreement, greater competition, Vietnam War – needed dollar devalued, paved way for other countries to float currency
• series of energy crises: 1967-1979, cause by embargo imposed by Arab oil producers and the decision by OPEC to cut production (rising from $3 to $12/barrel by 1974)
• significant rise in oil prices and breakdown of the dollar-gold standard prompted a stock market crash (1973-4) and the 1970s recession – high inflation and high unemployment (stagflation – near occurrence for governments)

Liberal resurgence

• shift to conservative politics in the UK (Thatcher in 1979) and US (Reagan in 1981)
• high income countries increasingly shifted economic policies away from maintaining full employment to preparing citizens and corporations for international competition
• China: communism was gradually abandoned in all but name from 1979, while with the end of the Cold War, Russia and its former republics struggled to establish capitalist systems
• global economic system was again pushed in a more liberal direction

Question 5

What is poverty and how is it measured?

Answer 5

• defining and measuring poverty is important as it shapes our expectations of acceptable income and living conditions
• qualitative definitions: lacking essential items
  
  • Copenhagen Declaration (1995): “… a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education, and information”
  • less common
• quantitative definitions of poverty: based on measures of income or consumption
  
  • understand poverty monetary condition – people don’t have enough money to satisfy needs
  • definition developed out of experience in high income countries yet poverty actually experienced in developing countries
  • relative poverty: extent of poverty in a country (entire population ranked in order of income per capita)
  • absolute poverty: ‘poverty line’ set at a specified income or consumption amount per year, based on estimated value of a ‘basket of goods’ (food, shelter, water, etc), more common
    
    • benefit of definition: consistent over time and across countries enabling comparisons to be made
    • usually using PPP
    • first released by World Bank in 1990, continually extended and expanded
    • issue: hard measure e.g. if people are living slightly above the poverty line would most likely have similar experience to those who live by definition in poverty yet are not classed as living in poverty themselves
  • marginalised groups in this analysis: groups that do not use monetary trade e.g. sustenance farmers and ‘hunter gatherers’

Question 6

Campaigns for poverty

Answer 6

• target shift: from reducing poverty to ending poverty
• many campaigns yet limited success
  
  • 1981: east Asia success story, world’s poorest countries, now great reduction in those living in poverty
  • discourse: question of poverty increasingly decoupled from questions of distribution
  • questions about distribution are highly political and contrary to commitments by aid and development actors to being apolitical (great support for reducing poverty – ‘makes people feel good’ yet questions of inequality are not addressed)
• policy measures: debt forgiveness, development aid, fair trade > free trade
• central goal of UN Millennium Development Goals

Question 7

What is inequality and how is it measured?

Answer 7

• typically measured through income inequality (the distribution of income among a population)
  
  • Gini coefficient: typical measure of income inequality, number between zero and one that measures the degree of inequality in the distribution of income in a given society
    
    • issues: only captures relative changes e.g. if incomes of the rich and poor change by the same amount, Gini coefficient does not change
  • less common measures: ratio of top decile incomes to bottom decile incomes, comparative average incomes across regions
• wealth inequality: distribution of property, including financial assets, among a population
  
  • more limited data because of inconsistencies in measuring wealth inequality across countries, reporting issues e.g. wealth not fully reported for tax avoidance purposes
  • harder to access
• inequality on the policy agenda:
  
  • G20 discussions
  • IMF Working Paper
  • Capital – Thomas Piketty, trickle-down economics – greater benefits to all of society with less inequality, suggests global progressive tax

Question 8

What is development and how is it achieved?

Answer 8

• route to development considered by key global development agencies: market-led mechanisms and relatedly, the depoliticisation of economic activity (reducing government/state intervention and role in establishing markets but greater role in regulating them)
• view of how development should be achieved aligned with the shift in economic orthodoxy after the collapse of the Bretton Woods order
• practiced through Structural Adjustment Programmes (SAPs)
  
  • countries receive financial assistance from the World Bank and the IMF on the condition they undertake market-oriented reforms e.g. privatisation, austerity, price controls, lowering trade barriers (loan conditions)
  • captured in the ‘Washington Consensus’: a list of market-oriented policies for development put forward by US economist John Williamson at the end of the 1980s (e.g. privatisation, cutting subsidies, fiscal austerity, deregulation)
  • widely criticised:
    
    • for reducing states’ capacity to manage economic development
    • for its very mixed results e.g. privatisation programs in Russia
• Beijing consensus: contradicted neoliberal logic
  
  • states directed the development process, governing markets rather than deregulating them
  • state-led economic planning: governments heavily involved in promoting and protecting new industries, regulating capital flows, and managing foreign direct investment, corporatisation – government agencies managing companies for the purpose of gaining market share rather than short-term profit (softening disruptions)
  • East Asian tigers (Hong Kong, Singapore, Taiwan, South Korea), the Tiger cub economies (Indonesia, Malaysia, Philippines, Thailand), China
• human development
  
  • across both consensus’ economic growth persists as the route by which countries address poverty and inequality (achieved through integration into the global economy – enabling employment)
    
    • aligns with view of poverty as a monetary condition
    • integration issues: may not bring about greater equality
  • can better development outcomes be achieved through less growth and greater redistribution? – more holistic and with greater qualitative view of poverty
  • other approaches: human, gender and environmental (at the margins of development debates since 1970s)
  • UN Development Report: “human development is about much more than the rise or fall of national incomes. It is about creating an environment in which people can develop their full potential and lead productive, creative lives in accord with their needs and interests. People are the real wealth of nations. Development is thus about expanding the choices people have to lead lives that they value. And it is thus about much more than economic growth, which is only a means – if a very important one – of enlarging people’s choices”

Question 9

Development/poverty summary

Answer 9

1. Poverty alleviation has been pursued through many ambitious campaigns
2. There has been some success in reducing the proportion of the global population living below the international poverty line – but this patchy success has also come alongside widening inequality (both income and wealth)
3. Across the debate between the Washington Consensus and the Beijing Consensus, economic growth has persisted as the prevailing means of addressing poverty – achieved by integrating economies into the global market – overlooking the issue of inequality