International Political Economy - Assignment Example

International Political Economy 1. US President Woodrow Wilson said, “The State exists for the sake of society, not society for the sake of the state”. This statement can be compared with Margaret Thatcher’s pronouncement, “there is no such thing as society”. Drawing on key IPE theories, make a case as to which statement you believe to be more accurate, demonstrating why. The statement by President Woodrow Wilson that the state exists for the sake of the society and not that the society exists for the sake of the state is more accurate than the other statement that was made by Margaret Thatcher. The basic idea behind these statements is related to the manner in which governments and the people who elect those governments, which means the society, interact with each other. The basic question is whether the government can be regarded as superior to the society in which it exists or whether the society can be regarded as being superior to the government. So, from the statement by Woodrow Wilson, it is said that the government exists for the sake of the society and not the other way round. On the other hand, Thatcher said that a thing like society does not exist at all. The statement by Wilson is more accurate because of several reasons. First of all, it shows that the government is part of the larger society. Governments do not exist by themselves; they are actually examples of the institutions that form the broader society. Therefore, since the government is part of the society, it can only be said that it exists to serve the society that it is part of. Secondly, the government is usually formed by members of the society. Under democratic practice, the government is formed by elected members of the society. The society elects leaders through a democratic process and mandates them with specific responsibilities and duties. It is up to the government to serve its electorate or society by using the resources that have been made available to it to provide specific services to the society. Therefore, the society uses the government as an instrument of fulfilling specific duties and responsibilities. 2. International Political Economy (IPE) concerns itself with the intersection of markets and politics. Critically assess the argument that economic globalization is a political project rather than a market-driven project. On one hand, economic globalization can be seen as a market-driven project. What this means in general is that globalization can be seen as a process that is driven by forces that are related to markets. For example, the process of economic globalization can be seen as a response to the emergence of new markets for products and services. As new markets for products and services emerge in different countries and regions across the world, companies respond to this development by expanding their operations beyond the borders of their mother countries. This process turns local companies into multinational corporations. Further, the emergence of international markets is driven by technological advances that make people to be more interconnected with each other regardless of where they are located in the world. On the other hand, economic globalization can be said to be a political project. What this means is that the rise of globalization can be attributed to political interests that are driven by political players at the international level. The increase in trade and the rise of integration among different countries can be seen as a way in which different nations seek to create a hegemony in the world. Therefore, different nation states use corporations as agencies that can be used to create a highly integrated and unified world. What is important to note is that economic globalization can neither be said to be a purely political nor market-driven project. Globalization is a result of political and economic factors. Both political and market-driven forces have played, and continue to play, a key role in shaping the process of economic development. For example, as much as an increase in the volume of international trade can be attributed to the emergence of new markets, the growth of international trade is regulated by laws that are formed by entities which serve political and economic interests of nation states. Similarly, the rise in the use of technology and increasing cultural integration are purely market-driven factors. However, it is the manner in which governments work with corporations across the world that makes it possible for corporations to exploit these factors and make the process of globalization successful. 3. What do you understand by the term ‘Keynesianism’? What are the key differences between Keynesian liberalism and neo-liberalism? Keynesianism is a form of economic thinking that was developed by John Maynard Keynes. The basic argument of the theory is that the government plays an important role not only in helping to prevent the occurrence of an economic crisis, but also in helping the economy recover from the effect of an economic crisis that may occur. Under Keynesianism, the ability of the government to help the economy recover from an economic crisis is based on its power to influence the aggregate demand of goods and services in a country. Thus, when a country is in the middle of an economic crisis, the government can stimulate economic activity by increasing its overall expenditure through social programmes and reducing the level of taxation. There are fundamental differences between Keynesian liberalism and neoliberalism. The first difference can be seen in the role of the government in the economy. Under Keynesian liberalism, the government is required to play a role in economic affairs. The role of the government in the economy is to regulate economic activities and step in to address serious issues such as the occurrence of economic crises. Thus, the government is not completely isolated from economic activities but rather works to regulate and ensure that the system functions perfectly. However, under neoliberalism, the basic argument is that the government does not have any role to play with regard to the economic affairs of the country. Under neoliberalism, it is believed that markets are efficient and that the capitalist system can work perfectly without any form of interference by the government. Secondly, neoliberalism advocates for reduced government spending, deregulation and a complete transfer of economic activities from the public to the private sector. This is in contrast to what is advocated for under Keynesian liberalism. Keynesian liberalism advocates for the government to get involved in economic activities as a way of rescuing the economy from economic crises. 4. What is the liberal critique of mercantilism? In your answer, discuss Milton Friedman’s criticisms of economists and politicians who favour a stronger role for government in the economy. To start with, mercantilism is based on the notion that states are the central players in the economic activity that takes place in a nation. This, according to liberalism, is not true. Liberalism argues that the state is not the key player in economic activity. Under liberalism, private enterprises, or companies, are the key players in the economy of any country. As well, mercantilism is based on the notion that governments should play a key role in controlling all the economic activity that takes place within a country. This notion is strongly criticised under liberalism. Under liberalism, the role of governments in the economy is seen as minimal and not at all as central. In addition to this, governments are only required to regulate the economic activities that take place but not to attempt to control them. Thus, the basic argument under liberalism is that governments ought to act as regulators and not controllers of markets. Additionally, mercantilism advocated for the need of governments to put national economic interests at the centre of all their activities. Liberalism sees this approach as the reason as to why governments pursue protectionist policies and, by extension, end up starting wars with each other. Therefore, liberalism advocates for economic cooperation as opposed to protectionism as a way of achieving economic progress. The criticism of Milton Friedman against politicians who favour a stronger role for government in the economy was based on the observation that there was need to minimise the role of the government in the economy in the first place. Hence, a stronger role of government in the economy means that governments would certainly interfere with the manner in which free markets operate. Therefore, the role of the government in the economy should be limited to regulation through the role of efficient management of the currency by central banks. 5. “Major failures of regulation and supervision, plus reckless and irresponsible risk-taking by banks and other financial institutions, created dangerous financial fragilities that contributed significantly to the current financial crisis”. In light of this judgment, to what extent, in your opinion, should greater financial regulation and supervision be implemented? Based on the causes of the financial crisis, there are several areas that should be addressed by financial regulation. Addressing these areas defines the extent to which financial regulation and supervision should be implemented. First, there is need for regulatory bodies to ensure that all banking and other financial institutions hold specific amounts of capital. Lack of adequate capital by banking and financial institutions was one of the things that made the crisis to occur in the first place. Therefore, regulation of banks should be aimed at setting specific minimum capital levels that banks should hold and ensuring that all banks and financial institutions adhere to the set standards. In addition to this, there is need for the regulatory and supervisory process to be designed to work to ensure that banks and other financial institutions have specified levels of liquidity. When the liquidity status of large banks and financial institutions is controlled, the global financial system will be relatively stable and this will prevent the occurrence of another global financial crisis. Also, the manner in which leading banking and other financial institutions compensate their executives should be regulated. Earlier, banks tied the compensation of their executives on the profits that the executives helped the companies to get. Although this is not a wrong system as such, it makes it possible for executives to take an enormous amount of risk as a way of attempting to get higher compensation. Therefore, the manner in which executives are compensated should be regulated to ensure that institutions are not exposed to very high levels of risk. It is also necessary to create a global financial regulatory environment that works to protect consumers against the effects of financial crises. Such a global system would make it possible for regulatory and supervisory bodies to collaborate with each other to ensure that institutions are operating within the set standards. The system would also work to protect consumers against losses occasioned by creation of high-risk products that fail in the market. 6. “Global problems require global solutions. We are faced with an environment where unilateralism often prevails, yet we face a conundrum in that all aspects of economic policy require collective action in order to be effective.” Do you agree with this statement? Explain and justify your position. The main point here is whether a unilateral or a multilateral approach is the better way of addressing the different types of problems that are faced in the world today. In my opinion, multilateralism is a better and more effective way of addressing current global problems. This is so because of several reasons. First, multilateralism is necessary because there is no any single nation that can manage to solve all the problems of the world. Over history, countries and regions have rose as national or regional powerhouses. The United States of America replaced the United Kingdom as the global power house soon after the Second World War. Currently, china is growing economically very fast and it is predicted that its economy is set to overtake that of the United States in the near future. However, these national powers are not able to solve complex global problems such as poverty and inequality. It is only when their huge influence is combined with the input of other players that such problems can be effectively solved. Second, the use of a unilateral approach to solving problems creates a situation in which some countries are motivated to gang up against a country that is perceived to be a superpower. However, when a multilateral approach is used, all countries are required to help in solving global problems. This makes it unnecessary for some countries to attempt to compete against one country which is perceived as a superpower. Read More