What did I learn in the International Political Economy class?

Theme: Insight

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Sharing reflection about learning “International Political Economy (IPE)” -what did I learn in class?

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Sayma Akhter Jafrin

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After joining the IPE class, I become insightful about the questions: "Why don’t I make the pair of shoes I wear? or why the Fairness cream is only available in developing or poor countries or what influence the buying decision? Why a developing country like Bangladesh is 2nd best in the production of Ready Made Garments-RMGs? What is the relationship between domestic production and international production, how and why the import-export of trade is still going on?"

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Answering the first question is, I am not making it because I am in the circular economy, (Paul Samuelson who drew the most famous circular diagram of economics) Household to Firm and Firm to Household the circular diagram. How governance and policies are related to the circular economy and making an expansion in international trade? Therefore, all other answers will be found in the International Political Economy (IPE) that correlates the connection between economics and politics in world affairs or politics. Economic power influences the political relationships among states. I become insightful about The purpose of the International Political Economy which is what drives and explains world politics and how it does in the world economy. In simple terms, my understanding says that IPE is what says, destruction destroys prosperity, production creates prosperity. Global production then helps workers to get jobs and the money they use for consumption again helps enrich the economical flow. IPE is working on stabilizing and dealing with proper economical flow letting go of any potential dispute.?

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Suppose, someone named “Jasia,” works in a production firm that produces cars. She is working as an Accountant. In that company, there is an annual meeting where all the employees will have a grand dinner. For attending the program, she was looking for a pair of shoes. She started looking for shoes online. She found her country’s brand, “X” is $20/pairs and another from a developed country, the international brand, “Y” is offering a 20% discount on shoes and is $20/pairs. The advertisement for the second one was quite impressive and had a tagline of the brand “Be Elegant'', wearing “Y” shoes! Both of the shoes are liked by her. But she was confused about which one to buy? The answer here is, she went for the second one.?

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From this course, I got insights into how she took the decision and what is the policy behind it. What was there she got influenced to buy the second one? What was the international economic relation there? Economic affairs mean the trade between nations is happening. More precisely, The economic flow of investment around the globe. Now, suppose there is another int.?Brand with the same product and great advertisement, giving exactly the same type shoes in $15/pairs. But she heard the country of production (a developing nation, where the labour cost is cheap) has a bad reputation with one-time products, but there was no clue that the shoe will be of bad quality. Now, what will be her decisions here? Will she switch to this? If she switches to the product what is the politics behind it? And if she doesn't, what is the politics behind it??

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When I look at the consumer’s point of view it gives me a basic understanding of how the consumer choice is based on IPE which is what helps her to analyze and decide what she wants from thousands of products. Her daily basis decisions, actions all have a large impact on the local, national, international or global platform. Certainly, there is individual engagement in global IPE. Like Jasia, all people around the globe are consumers exercising decision making. Due to hegemony the consumer can change his/her choice and thus decision. There is certainly a global economy that is now connected in every corner of the world. Such as a freelancer working in a developing country or someone from a poor country listening to a song of Justin Bieber on youtube or a consumer from a developing country using the ‘UBER’ app and sharing a ride. All of the examples are individual participation in the global economy. All tariffs, quotas or global trade barriers are part of global politics and nationalism. In the reflection paper later I will discuss more the importance of international trade institutions to the global Fiscal and monetary policy, MNCs etc.

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Every state has an economic policy due to make sure their economy gain and accumulate wealth every state follows one of these theories. I learned about these theories, which are the main concept of a state who will be powerful in the particular economy? -State, individual or the business group? I learned about the old school economy- Mercantilism, Economic Liberalism, and Marxism theories are relevant to state behaviour, based on these theories. The idea of Mercantilism that the policies are fundamentalism by the state is the anarchistic relationship with the state people. The state needs to interfere in the trade-in Mercantilism. On the other hand, Individual happiness and freedom are described in Liberalism theory. Marxism is based on the capital class-elite people who are the investors or capitalist etc. classes are important as they are the most important actor as they are getting the most of the benefit out. They tend to see exploiting the poor class. They try to neglect the power of the state and they become more powerful. In terms of the policy, a country is considered as how much the country is involved in international trade. China is supporting liberalism policy and the open market trade follower. On the other hand, Iran is supporting Mercantilist policy and their trade is confined to some countries. China got bigger development than Iran. Here, Jasia as a consumer is more likely able to buy shoes from a liberalism based country like China than a country like Iran.

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In the class, it was discussed that the global economic historical context after WWII Liberalism became the top choice of the current world. But, there are policies of conditioning trade in the open market economy on the basis of the economic benefit of an individual country. Here the interest or economic policy of a particular country is influencing to make an international system to avoid the states to practise anarchy but to be the rational actors after post-war WWII. Also, to expand the international trade and functional payment monetary and financial transactions of the states. The Bretton Woods Agreement?in July 1944 established the structure of the Int. Trade system with the 44 elite countries, resulting in 3 institutes emerged from the World Trade Organization (WTO), International Monetary Fund (IMF).

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Economic exchange behaviour is checked by the WTO so the Hegemonic Stability Theory can be established to ensure stability in all countries. Example: Bangladesh and India cannot be engaged in such a trade where any other country will be affected. Then WTO will forbid it to play an intermediary role in between countries to make sure reciprocity, transparency, commitments and safety, Anti-dumping, the establishment of disbursement mechanism and non-discrimination. So, those countries have fair trade competition, market liberalism and have a comparative advantage.?But, the WTO also failed in many ways in terms of imposing tariffs (US-China Trade dispute) and trade protection in infant industry of developing countries also neglected, environmental sustainability and protection and biodiversity are not dealt with by the WTO. WTO is based on two principles Market liberalism and non-discriminations. GATT (General Agreement on Tariffs and Trade) was an agreement in 1947, based on how the int. Trade will look after. The interesting part I learned is that government policies can also directly control the international capital flow or the exchange rates so that the government won’t have any deficit. The second one, the International Monetary Fund-IMF, controls floating systems that are an adjustable exchange rate of the government. It monitors the country's policy so that they don't devalue their currency and so that they can manage their stabilization fund also other country’s currency. The conference also helped create the system to look after the economic problem such as some countries are severely affected by WWII so they need to establish their system, IBRD to the World Bank.?

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I want to clear my understanding that, IMF deals with the international monetary system of all states and gives medium-term loans to the countries to make sure the balance of payments and exchange stability. On the other hand, The World Bank oversees the developing worlds or poor worlds by giving financial assistants. It also helps these countries social enterprise by affiliating with International Finance Corporation (IFC). IMF is mainly there to stabilize the exchange rate and the world bank is there to reduce the poverty of the poor countries. The IMF provides assistantship and advice to all countries and the World bank to maintain the country's economy. Therefore, WTO is based on Economical exchange such as trade policy. The IMF is based on Monetary policy and the World bank only focuses on poor nations. It was great learning about the IMF, World Bank and WTO in the class, now I am clear which works for what, that I do not know before.?Before the lectures, I was ignorant about the organization's work. Now, I can clearly understand which plays what role in the international economy.?

?I understand that all the policies are depending on the interest of the power group. Such that, if its liberalism then the interest is based on the general people of the country. The international system emphasizes equality in all states. I know that trade is a vital need of domestic production, thus economic development. Now, I have the insight that there is a theoretical connection between trade and economic development. From the question of what is the role of trade in the developing process? After analyzing I can understand a lot of topics. First comes the term, ‘Import Substitution’ means the substituting domestically produced goods that have been previously imported by the government of the country. As the country stops import. Therefore, foreign dependency is going to be deceased. Therefore, domestic production will be increased and the country will not be dependent on other countries. So, the country will be dependent on export for economic development. ISI or Import substitution organization, so the local production will be increased. So the local employment will be increased and the wage is increasing. Therefore, people’s purchasing power will increase. So the standard of living will increase. So, agricultural activities will be lessened.?In Latin American countries such as Brazil, Argentina 1960 the ISI policy.?

The government will intervene in the policies and then the private organization or entities will be involved then the privatization will be increased. Increasing privatization again is a part of liberalization. So, the country will need some time. The Impact of ISI as exchange rates were held fixed as it was believed that would make imports of capital goods cheaper and thus increased investment. But, start having crises on the imports of the foreign exchange. Crisis of balance payment, the over or undervaluation of the real exchange rate all happens. It also diminishes the newly emerging industries. It might result in debt, there might be scarcity in foreign exchange availability as well. Import-substituting industrialization promoted development as well. Due to insufficient production, there will be no gains from the trade and temporary subsidies become permanent. Therefore, higher income inequality and unemployment. Argentina is a case study of the impact of ISI. The other term in Trade is, EOI or Export-oriented Industrialization. In the year mid-1960, the starting of the industrial revolution in developing countries led to the East Asian Miracle in High Performing Asian Economies (HPAEs) – Japan, Hong Kong, the Republic of Korea. The policies taken by these countries helped them to be economically strong in international Trade. With a great interest in knowing the factors, I found a case while researching to understand more about the impact of ISI And EOI. Here, I am presenting a case study on EOI, South Korea with data collected from the world bank. I tried to shed light on my understanding of international Trade by presenting a particular country’s circumstances. By writing this, I want to reflect on my clear understanding of the historical development of the global political economy which I become insightful about from the course. This case study sheds light on outlining the main structural features of the global political economy from the perspective of South Korea (1960-2019). As it was underdeveloped but Korea's postwar economic history corresponds to noteworthy changes.?

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Due to globalization, a massive change happened in international trade that I figured out by giving the previous case study. Now, due to the open boundary for trade that is import-export happened. But, the tariff, quota, tax are barriers for having a profit at large. It became expensive. As the real-world economy is more an imperfect market. There are major costs for transportation of raw materials, transfer labour from cheap labour force countries along with other factors of production. Therefore, the concept of MNC- Multinational Company arose which helped the developed countries to capitalize on foreign country’s resources.?Therefore, Licensing (i.e, Lilly & Co.), Franchising (i.e, Pizza Hut, McDonald’s), Joint ventures (i.e, Xerox Corp.) and mostly foreign direct investment (FDI) strengthened. Sometimes, firms have full control over their foreign business that is acquisitions of existing operations to reduce the risk of large losses (i.e, Google) MNCs regulate a big part of the world economy. The changing political landscape for MNCs in the west made them economically powerful by strengthening their investment in cheap labour developing countries. The revenue goes to the developed countries and lets the workers give fewer wages. A lot of negative exploitation movements took place in the host countries by the MNCs, (but less likely WTO talks about that). Anyway, due to specialization and increasing production efficiency of the comparative advantages, the MNCs choose their hubs to continue their production. They also look at the exchange rate system of the country, either fixed, freely floating, managed float or pegged exchange rate. It helps the company to understand and set them free from any trade deficit. MNC also focuses on foreign exchange market international arbitrage so that it facilitates their business. After establishing the business, they need to compete with the local companies and survive. If the local companies produce the same product at a cheap price then the MNCs tend to innovate or develop their products to survive, if they can’t then they die as a company in that country. The quick growth of an MNCs can lead it to a peak of success (i.e, Microsoft, Google, Starbucks) or slow growth can result in the death of the company (i.e GEC in Bangladesh). Though there is a bad reputation of injustice and exploitation of the MNCs it also helps the growth of the poor or developing country and to meet the consumer demand of food and other necessaries. If the government can stop the heinous work done by the MNCs can be lessened, just need strong policies to be imposed. I got insights into the risk factors. Due to several risks (country risks or international risk) an economy can face certain risks such that, a financial crisis, which leads to devaluation of money and to the steep decline in value of assets. There are several kinds of crises, banking crisis (sudden rush of withdrawals), currency crisis (depreciation of currency value), speculative bubbles and crashes (over the price of some assets).

Global financial crises lead to large financial crises of the particular economy which lead to credit booms, that helps increment of bubbles and subsequent crashes. Financial crises like International debt lead the poor and developing countries to be in debt to multilateral creditors such as IMF or the World Bank. In many countries, there is a history of being in bank debt. Professor also discussed the Petro-dollar recycling’ in the 1970s and the Latin American debt crisis of the 1980s, ‘capital account crises’ of the 1990s, in Mexico, East Asia and Argentina. I learned about the origins and consequences of the recent global financial crisis.

This course has definitely enlightened me and made me understand I am a microdot in the world map, my behaviour as a consumer and how I am adding value to the global economy. I would like to end the writing by leaving the question unclear, will I still continue my decision of buying a product yet supporting a wrong message or exploiting the poor labour of a developing country? ?

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Acknowledgement: Thank you to Dr Selim Reza for all his efforts in teaching the course International Political Economy. Because of his teaching method, I got a deep understanding of the International Political Economy.

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References:

?1.??????Oatley, T. (2012). International Political Economy. Boston: Longman.

2.??????Reza, D., (2020). PPE3500: International ?Political Economy.

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Sayma Akhter Jafrin, is a recent graduate in Economics, from Asian University for Women.?????????