Monday, March 1st, 1999

Announcements: If you can't go to you recitation on Friday, you can still receive credit for the class by going to a presentation of "Frontline" on Wednesday night from 6:45-8:00pm in 160 Willard. It will be a documentary on Rwanda.
    Material from this week is not on the midterm, but will be on the final.
    There will be 13-15 short answer questions, and you will have to answer 10.
Lecture notes:
I. International Political Economics
    A. Involves the interaction of politics and economics
    B. Can be politics of economics or economics of politics.
    C. 3 Traditional perspectives:
        1. Mercantilism- realist economics
        2. Liberalism - sam rules/principles of the political theory of the same name.
        3. Structuralism - socialist economics
II. Mercantilism
    A. Focus is on the economic competition and subservient role economics plays in politics
    B. Believe that politics must control economics
    C. Europeans explore and conquer new world, then they take the resources there and use them
        for gains in Europe.
        Example: Spain became very rich from the gold found in its colonies in South America.
                        It then used the gold to build a large armada. Then decided they were going to
                        fight English, but most of the boats sank on the way to England.
    D. Not concerned with being fast, but being first.
    E. They have a must win philosophy
    F. Countries should look at economics as a competition
    G. Is not a promote theory because there is no real colonialism left in the world.
III. Neo-Mercantilism
    A. It was the adaptation of Mercantilism to international changes
    B. Create systems that give a disportional advantage over others
    C. It is the prominent theory used in developing countries, especially in Asia
        Example: Japan has a very closely knit relationship between the government and
                        business.  The government uses its influence to find new markets for
                        companies.  It also finds industries that are high profits and promotes the
                        development of them. The MITI was formed in Japan in the 1960s to help
                        determine which products the country should focus on manufacturing.
    D. Uses it influence in politics to help companies trade in international markets
IV. Liberalism
    A. Believes in a disconnection between government and economy
    B. Adam Smith believed that you should just leave the economy alone to do its own thing
    C. Each economic identity should be left alone allowing the consumer to make the decisions
    D. States should be subservient to economy
    E. Politics should be used to create a framework for economics
    F. Politics is seen as a hindrance to the economy
    G. In politics, liberalists want more international institutions, but less domestic ones.
        1. They only want domestic institutions that enforce property rights, contracts, etc.
    H.  They believe that the government should facilitate activities for economic endeavors
         1. At times the state bows out of a situation to benefit the economy, while staying in
            longer would have benefited them economically.
     I. Liberalism won because it is the most widely used today
        1. Also, Mercantilism is to blame from the many economic problems in the Asian economy
            a. These problems are due to over expansion (the governments burrowed too much
                money)
            b. There was so much money invested in Asia because the government backed up the
                company.
            c. Investors decided that there was too much money and too little opportunity
        2. It is the more intellectual and sound theory
            a. Most economists are liberalists
V. Structuralism
    A. Derived from Socialism
    B. Has faded in popular with communism
    C. Important because it mirrors Mercantilism
    D. Mercantilism doesn't help weaker countries, because it tell them how they are going to lose
    E. Structuralism know agrees with the competition, but also acknowledges its unfairness
    F. Look for a way to improve/ even out the playing field
    G. Agrees with Mercantilism in that both view competition as good, and the politics
        influences economics.
    H. Structuralists have developed a solution for those who are on the wrong end of the
        system.
        1. They believe that the weaker countries should short circuit the system
        2. The countries do this by creating import industrialism substitution, which is putting taxes
            on imports so that they are too expensive for the general consumer, and then substitute
            the imports with domestic products
        3. Thus, allowing the domestic companies to grow
        4. This was used by countries that were once under empirical rule and what to break
            economic as well as politic ties with their old rulers.
    I. This system is widely used in developing countries, especially those in South America
    J. Under developed countries are dependent on developed countries imports.
    K. It is hard for poor states to break this cycle.
        1. Most are forced to use their political power to burrow money to develop industry
    L. This system doesn't work, but it could if there were a few changes.
VI. Problems with Structuralism
    A. The link between politics and the economy is too tight because it can lead to a conflict of
        interest.
        1. Once in office political officials have a lot of pressure on them to stay in office.
        2. To do this, they generally put pressure on companies to hire certain people, even though
            these people may not be qualified for the job.
    B. It creates industries that are bulky and inefficient and don't depend on the market, but on
        the government.
        1. They make products to make the government happy
    C. Lessens the quality of the product
        1. The product sells well domestically, because it is the only affordable choice the
            consumer has.
        2. Can not compete in the international market
        3. The more you make the less the product cost to make and vice versa.
    D. It doesn't work economically, but was very popular due to politics.
VII. Comparative Advantage
       A. Ross Perot, former presidential candidate, believe that the US becoming involved in
            NAFTA was a mistake.
            1. He called it the "great sucking sound," because he said all the jobs in the US would be
                going to Mexico
        B. The current unemployment rate in the US is 4%, so jobs weren't lost
        C. Analogy: It is like saying that someone who is smarter than you is going to take all the
                            jobs possible, and because you aren't the smartest person you don't get a
                            job.
            1. Just because you can't be the smartest person, doesn't mean you shouldn't do
                anything.
        D. Countries with the biggest advantage are the ones that can produce the products the
             cheapest.
        E. Absolute Advantage states that the state who makes the best product (highest quality) at
            the lowest cost has the advantage.
        F. Comparative Advantage states that the state who makes the product relatively better
            has the advantage.