Apuntes Ipe

LAURA HERNÁNDEZ GIL
INTERNATIONAL POLITICAL ECONOMY
LECTURE 1 - STUDYING INTERNATIONAL POLITICAL ECONOMY IN

EXTRAORDINARY TIMES
INTRODUCTION: general considerations on the impact of the pandemic in globalization (we

will study this at the end of the course).
IPE studies “how politics shape the global economy and how the global economy shapes politics”.
This includes:
- The politics of international economic transactions. They can be causes or consequences
of domestic or international politics.
- Political battles between the winners and losers of global economic exchange.
Accordingly, we will study a brief history of international political battles since
globalization.
- How political negotiations in the international sphere affect people’s lives.
- A complex web of actors (international organizations, etc.) that are interconnected
through multiple networks, dynamics and risks.
According to Oatley, IPE can be divided into 4 areas:

- International trade system:
a) Centered upon the WTO: elimination of barriers.
b) All members of the WTO have access to other members markets.
c) Challenge: rise of regional markets.
d) Focus of study: how political battles shape the WTO.
- International monetary system

a) It enables people living in different countries to conduct economic transactions
with each other.
b) Focus of study: how politics shapes this system.
- Multinational corporations: particularly, how politics shapes the MNCs.

- Economic development:
a) How politics shape policies that governments adopt in issue areas.
b) How politics shape societal decisions about how to allocate available resources.
c) Consequences of the choices that societies make about resource allocation:
evaluative studies on the consequences on the welfare state and on distribution.
Our focus in IPE includes:

- Interacting interests, institutions and ideas between different international actors.
These include:
a) Interests regarding foreign economic policies are those which raise the income.
Mechanisms that explain this:
- Material interests
- Ideas
b) Interests are transformed into policies through the institutions. Political
institutions establish:
- the rules governing the political process
- which groups are empowered to make choices
- the rules to take decisions
- enforce collective decisions
- Transforming global and domestic economies and the way they are governed.
- Global integration and dis-integration. The present backlashes of globalization
regarding:
a) Individuals and collective actors.
b) International, regional and supranational organizations.
c) State-market relations and their evolution since the 19th century.
Example of a backlash of globalization

President Trump declared in 2018 that the “if the WTO does not shape up”, he would pull the
U.S. out. The concept Pax Americana reflects the American Hegemony regarding international
organizations. In the current global economy, tensions actually started earlier: they have been
fostering for years.
There is increasing distrust in multilateral institutions, which are challenged by:
- Their founding states.
- New-comers: persuaded by hegemonic powers like the U.S.
- People and NGO’s. Example: WTO dispute settlements. In 1991 there was a protest in
Seattle which claimed that democracy was incompatible to the WTO.
The US is increasingly more hesitant to back up multilateralism. Main example: WHO.

Also, the GATT (predecessor of the WTO) legitimacy had been challenged.
OLD AND CURRENT CONTESTATIONS AND AT THE CROSSWORD
The COVID-19 crisis and its future impact makes this all even more challenging, which could
intensify economic tensions and trade wars (even physical wars according to some):
- Increasing competition and superpower rivalry, particularly featuring the U.S. and China
but also many other countries.
- In the context of increasing rivalry, we have a diminishing will for cooperation.
- Economic nationalism is also being enhanced by this crisis.
- Power shifts:
a) North-South conflict (not purely geographical divide, but rather development
divide).
b) US - China.
How would different theories see all this? Questions that interest us:
- What do you see when you look at the world economy and interactions between actors?
a) Cooperation or conflict?
b) A web of equal players or hegemony? Not equal in economic power, but in
contribution in making the rules of the game and economic institutions.
- Does politics drive economics? Or does economics drive it all?
THEORETICAL PERSPECTIVES IN IPE
1. Mercantilism, which drives from realism.

Realism
- International context is marked by conflicts, hence, anarchical (Hobbes in Leviathan).
"No arts; no letters; no society; and which is worst of all, continual fear, and danger of violent
death: and the life of man, solitary, poor, nasty, brutish and short“ (Leviathan, 1651).
- The States are the major actors, they allocate the resources since state’s interests are larger
than the ones of individuals. States are very rational and maximize their own interests
(selfishly). The interaction between states is a zero-sum game (based on a continuous
conflict where one part wins and the other loses. No cooperation)
Mercantilism: an offspring from realism

Theory from the 16th - 17th century, theorized in Europe but then extended its influence to the US,
back to Europe and then Asia (Japan and China). Main assumptions:
a) Mercantilism links national power to economic wealth. Acquiring wealth ⇨ power. Then,
international trade has a very important role because it is an instrument for acquiring wealth
at a national level which ultimately contributes to national power. Note: only exports, which
provide wealth from abroad, contribute to national power.
b) States are central actors and they should allocate the resources. As a whole, State
interests are larger than individual interests so that State’s allocation of resources contributes
to national power.
c) Economic nationalism instruments are adopted to again maximize wealth and power.
For instance, prioritizing domestic companies (this can be connected to the current context).
d) Some economic activities are more “valuable” than others.

According to Frederich List, German journalist and mercantilist thinker, “A nation that
exchanges agricultural products for foreign manufactured goods is an individual with one
arm which is supported by a foreign arm” (1841). In other words, manufacture is much more
valuable than agriculture and hence States should support it.
- What to do to max. power? In order to maximize power, a state must have a positive
balance of trade, meaning that exports should outbalance the imports.
a) Thomas Mun (16-17th century) said that as a “means to enrich a kingdom”, states
should ensure that exports exceed imports.
b) Jean Baptiste Colbert (17th century): developed the theory of “Colbertism”
linked to state interventionism.
- Also, states should “protect in order to industrialize”:

a) Alexander Hamilton (18th century) was the 1st Secretary of the US Treasury. His
mercantilist ideas shaped the economic policies in the US. Hamiltonian ideas
were adopted by following administrations and, though contested, they were
dominant for years.
b) Friedrich List (1789-1846): “neo-mercantilism”. He got jailed in Germany and
then fled to the U.S. There, he admired Hamilton’s ideas and the US economy.
He published his ideas in German which were very influential in the German
economy recovery.
- Hamilton’s ideas became dominant so that they were finally known as the “American
system”. His Report on the Subject of Manufactures (1791) was presented in the
American Congress and it became the foundation of mercantilist thought.
- The infant industry paradigm consisted of protecting domestic new industries
until they achieve economies of scale and hence compete with foreign countries.
Example: American new industries were vulnerable at first against old British
centuries, so they should be protected until they “grow” and can compete
internationally.
- In other words, the US is conceived as an “infant nation”, since it was newly
independent. Then, the manufacturing industry needed to be protected and
supported.
a) In order to embrace domestic industries, Hamilton suggested the use of

- Tariffs (i.e. taxes on imported items)
- Subsidies or bounties for domestic industries, made possible by tariff revenues.
- Promotion of technology and science: governmental investment on it in order to
guarantee progress.
All these policies would attract immigration. At this point, he diverged from the rest of
the rest of administrations who were fearful of it. But at that time, the U.S. could benefit
in the labour force that could come from immigration.
b) George Washington (1790) promoted a kind of self-sufficiency:
- “A free people ought not only to be armed, but disciplined; to which end a
uniform and well-digested plan is requisite; and their safety and interest require
that they should promote such manufactories as tend to render them
independent of others for essential, particularly military, supplies” (George
Washington, The State of the Union address, 1790).
- Then, he signed a tariff for encouragement and protection of manufactures as
one of the acts of Congress.
- President Ulysees Grant predicted that just as England adopted protectionism
when it first industrialized and then liberalized, in the US mercantilism would
also be abandoned for liberalism in the future.
2. Liberalism
It appeared as a reaction to mercantilism.
- Reaction to mercantilism: Countries did not get rich by means of trade surpluses.
On the contrary, countries became rich by enriching its individuals. Countries gain from
trade regardless of whether the balance of trade is positive or negative.
- Purposes: Then, the purpose should not be increasing state power, but
utility-maximizing by individuals.
- State should get out of allocation of resources, because if they intervened they would
mess it up.
a) Instead, the “invisible hand” of the market would allocate the resources efficiently.
b) The minimum state does not intervene in the market but it sets the rules of the
game, that is, the rule of law: property rights, contractual rights and supervising
individuals.
c) “Laissez faire” (let the market allow individuals to maximize their utility) “laissez
passer” (free trade, no borders).
- Absolute gains and positive-sum game: all countries can benefit from free trade. Also,
trade surpluses do not necessarily lead to an enrichment of the country: countries can
benefit from trade regardless of the stat of their balance (as we previously said)
- In The Wealth of Nations (1776), Adam Smith (protagonist of liberalism) challenged the
promises of mercantilism (there were precedents, but this was a very important
cornerstone).
a) Theory of absolute advantage: “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.” (Wealth of Nations, 1776).
b) Also, if states protect their domestic industries, foreign states will not afford to
buy their exports: “If foreigners are hindered from coming to sell, they cannot
always afford to come to buy”.
Liberalism and Freer Trade: David Ricardo followed with an International Trade Theory that
was based on the Comparative Advantage Theory. He defined it as a positive sum game where
the aggregate social welfare increases with free trade. Countries are made wealthier by making
products that they can produce at a relatively low cost at home and trading them for goods that
can be produced at home only at a relatively high cost. Example: Portugal exporting wine and
England exporting textiles.
3. Dependency, which drives from Marxism.
Marxism
Marx and Engels are the founding fathers of Marxism. Marx published Das Kapital in 1867 in
the context of the Industrial Revolution.
- They understood that capitalism was the most efficient system but it created exploitative
dynamics between the owners of the means of production and the proletariat. Such
exploitation is unavoidable by the very dynamics by which the capitalist system is based
on.
- Communist Manifesto (1848): “the history of human beings if the history of class struggle”.
- Economic determinism: the economic structure drive politics.
- Conflict: capitalism creates pervasive exploitation

a) At a domestic level, class struggle must ultimately result in a revolution
b) At an international level, the struggle is between industrialized vs. developing
countries.
Dependency school:
International trade is at the root of exploitation and global inequalities. Again, this is inevitably
created by the system. By means of engaging in international transactions, countries are
exploited, so international trade is not a positive sum game but a very negative one. There is a
divide between industrialized and non-industrialized countries which stems from
international trade.
“Development of underdevelopment” refers to developing countries locked in a situation of
perpetual underdevelopment, which can never catch up to developed countries and compete at
their level. As far as they are integrated into the global economy, they are in the long-run doomed
to stay this way unless the rules of the game change (e.g. protectionism).
Even if developed and developing countries have different interests, they do interact. There exists
a dichotomy between the core countries (metropolis) who export industrial goods and the
periphery countries (satellites) who export food and raw materials. This creates a sticky
structure of transactions that cannot be changed unless you change the rules of the game.
- Some of its founders are R. Prebisch, A.G: Frank and E. Wallerstein. A lot of governments
after the 50s-70s were very influenced by them, as well as international organizations.
a) Prebish thesis: The terms of trade deteriorate against the exports of developing
countries. Meaning, peripheral countries are worse off over time and they can never catch up
with the core unless they protect.
b) “ECLA Doctrine”: Economic Commission for Latin America (U.N.). After the 60s,
the Prebish thesis was very prevalent especially after decolonization in the peripheral
countries. Then, the dependency school ideas were very influential.
TRANSFORMATION OF THE WORLD ECONOMY. HISTORICIZING

INTERNATIONAL TRANSACTIONS
- See graphs on international trade: The largest trade surplus belongs to China (also
Germany) and the largest deficit corresponds to the US, which contradicts mercantilism.
- The first phase of global integration began before WWI. According to Keynes, a London
inhabitant in 1914 was born into global integration.
- But actually, after the WII trade openness (share of imports and exports as a share of
GDP) fell (see graph):
a) the UK is the most important example, which was the highest point in the early
19th century but in the 1870s went up to almost 70%; then, after the WWI it went
down a lot.
b) Spain is a lagger and there is no data until the 1900s. It started high but after the
dictatorship it went down to almost a closed economy.
- Concerning people's mobility, there is a very big difference between the first phase of
globalization and today’s globalization. Many Europeans immigrated to the US until the
1930s, then declined and after all kinds of immigrants started to move.
- The Industrial Revolution led to the expansion of the manufacturing industry. Power,
railroads and steam engines were essential inventions for this.
Britain was the pioneer, which made a unilateral move towards/pushing others for freer trade,
turning against mercantilist policies. This was not easy due to domestic conflict of societal
interests.. Due to having a first mover’s advantage by pushing, convincing and/or coercing the
others to open up. Yet, it was a “passive hegemon”, which is interesting to compare to the
American hegemony after WWII.
LECTURE 2 - HISTORICAL BACKGROUND AND POSTWAR

ECONOMIC ORDER
Summary
- Historical background of global integration
- The international monetary system and its evolution since the 19th century.
- Postwar international economy: the establishment institutionalized interdependence. We
will mainly focus on the Western bloc and its institutions.
Interaction between politics, power and economic transaction.
- Political underpinnings of interdependence
a) The belief in cooperation and multilateral institutions.
b) The rise of the US hegemony: Pax Americana.
A PRIMER ON FOREIGN EXCHANGE Nota: este epígrafe es del texto, no lo explicó ella
en clase pero me parece importante
- Foreign and currency exchange:
a) Affect the value of everything a nation buys/sells on international markets.
b) Impinges on 1) the cost of credit and debt 2) the value of foreign currencies.
- Travelers and investors are exposed to currency exchanges when deciding how much of
their national currency it will cost to buy or invest in another country: e.g. when a traveler
withdraws money from an ATM, a currency exchange is calculated.
- Changes in currency exchanges are particularly important for banks and investors: they
can mean huge gains or losses. Then, states are concerned with the short- and long-term
shifts in the values of their currencies to one another.
- Before ATMs, tourists did mathematical calculations in order to convert one currency into
one another.
- Countries can have hard or soft currencies:
a) Hard currency:
- Issued by large countries with reliable and predictably stable political
economies.
- Wealthy and powerful industrialized developed nations: the U.S., Canada,
UK, Switzerland and the Eurozone.
- They can directly exchange their currency for other hard currencies (as
well as foreign goods and services); the yen, euro or U.S. dollar are easily
accepted for international payments.
b) Soft currency:
- Not as widely accepted, usually limited to its home country or region.
- Reasons: 1) uncertain value 2) low volume of transactions based on

insufficient trade or 3) conditions that raise suspicions of unstable political
economy.
- Less developed countries (LDC’s): small or unstable economies.
- They must usually acquire hard currency in order to purchase foregin
goods and services. International lenders are also generally unwilling to
accept payments in soft currencies; then, their debt is expressed in hard
currencies and must be paid as such.
In sum, hard currencies get most of the international use and as such, the authors focus on
those in this chapter.
- Exchange rates are a way of converting the value of a country's unit of measurement into
another’s; hence, it does not matter what unit is used, but rather:
a) The acceptability of the measurement to the actors: banks, tourists, investors and
state officials in different countries.
b) How much values change over time.
- Political and economic factors affect exchange rate shifts, including:

a) Currency appreciation (i.e. a currency becomes more valuable relative to others)
and depreciation (i.e. a currency becomes less valuable relative to others).
b) Currency-rate manipulation.
c) Whether one’s currency is fixed to the value of another currency.
d) Interest rates and inflation.
e) Speculation
- Shifts in currency exchange have political and social consequences: there are always
winners and losers. Example: if a nation’s currency appreciates,
a) Losers: exporters, because their goods and services become less competitive in
international markets.
b) Winners: importers (in the nation), because the imports are cheaper.
- Exchange rates are often set by market forces. However, states sometimes secretly
intervene in order to purposefully manipulate them. Examples:
a) Central banks buy (demand) and sell (supply) their currency in order to alter its
value.
b) If the demand for a country’s currency declines, central banks use foreign reserves
to buy (demand) its own currency and push up its value.
- States sometimes favour undervalued currency in order to discourage imports and

increase exports. Problems of undervaluation:
a) If essential goods (i.e. good or oil) must be imported, they will cost more.
b) Reduced living standards, retard economic growth and inflation.
“The Tangled Web of China’s Currency Manipulation” case: they have mostly benefited
rather than lost from undervaluation.
- LDCs sometimes overvalue their currency in order to import cheaper goods (e.g.
technology, arms, manufactures, food and oil); however, this makes their exports less
competitive abroad.
In practise, these countries rarely benefit from overvaluation because their currencies are
soft and hence not used in international markets. They have still tried, which have led
them to choking domestic production and making them dependent on importation or
foreign lenders (particularly problematic in the agriculture sector).
- As the USD started to increase since the 1990s, countries decided to peg (fix) their
currencies to the US dollar: then, if the US dollar depreciated relative to the euro, so did
the Chinese yuan. Consequences:
a) Weaker currencies gained stability
b) U.S. economy evolution transferred into developing nations, depriving them some
flexibility in currency exchange rates.
- Inflation: all else being equal, a nation’s currency tends to depreciate when it
experiences higher inflation than other countries. Inflation means that the currency has
less real purchasing power within its home country, so that it becomes less attractive to
foreign buyers and hence depreciates on foreign exchange market.
- Interest rates and investment: if interest rates decline inside a country, foreign
investment decreases and hence the currency depreciates. The opposite is also true.
- Speculation implies betting that the value of a currency or market price for a certain item
or service will rise and earn the owner a profit when it is sold. Then, if investors believe
(based on their understandment on foreign markets) that a currency will appreciate in the
future, they will want to buy it in order to profit in the future; then, the demand can make
its price rise just due to the investors’ speculation, creating a gap (bubble) between the
normal market value and the new one. Actually, real estate agents consider the higher
market value is the real one, because it is the price that investors are willing to pay.
- Bubbles can form when hot money (foreign investment in stocks and bonds not regulated
by the state) moves quickly into a country, and bubbles can burst when investors rapidly
pull their money out in anticipation that market prices will fall. While bubbles in the past
caused hardship for many people, the severity of the current global financial crisis has
caused many to question whether states and the IMF should not do more to regulate
global capital movements.
THE THREE PHASES OF EXCHANGE RATE SYSTEMS Nota: esto es un resumen

de los tres sistemas explicados, más adelante están explicados los dos primeros más a fondo pero
me pareció más claro tenerlo primero aquí
1. The Gold Standard (1879-1934)
- 1st globalization wave: high mobility of everything.

- British hegemony (which lasted until 1914). Britain had the largest gold reserves and the
British pound was the hegemonic currency.
- Currencies were fixed to an amount of gold.
- Benefits:
a) Very low inflation and fluctuations.
b) Stability and predictability in the system.
- Consequence: flourishing international transactions.
2. Fixed ERS or Bretton Woods System (1947-1971)
1944: the Bretton Woods Agreements. During the war, transactions were very constrained.
- US was the new hegemon. The rest of currencies (members of the IMF) were fixed to
the US dollar and the US dollar was fixed to gold. Also called “the dollar standard”.
Major countries that were out of the Bretton Woods: the USSR was at the table but after
the negotiations they did not want to be part of the system and established their own; also,
China also left (it became a member of the IMF in 1980).
- Creators of the system: Keynes (Britain) and Dexter White (US).
- IMF surveillance: supervisor of the system.
- K controls: limited capital flows.
- In 1971, the US decided that they did not want to bear the cost of being a hegemon
anymore: they had to redeem their dollars to gold, and this conversion was very
expensive. Also, an expensive currency might become very costly due to less exportation.
Export competitiveness is very dependent on the value of a currency: e.g. the euro is
more expensive than the US dollar, which is bad for European exporters.
Now, who in Spain benefits from having a strong currency? For instance, travelers, the
financial sectors, capital investors in foreign countries.
- Some small movement of exchange rates were allowed. For some countries more than
others: LDCs run instabilities so that they were allowed more space instead of being
constantly fixed.
3. Floating ERS (1973-now) Nota: esto mezcla lo del texto + lo que explicó ella en una
reducida
In 1973 major powers authorized the IMF to widen the trading bands so that currency values
could depend more on market forces. This system was meant to be less constraining.
a) In the early ages of the Bretton Woods system, funds could not easily move
across- borders due to capital controls and fixed exchange rates. But the
widespread use of
U.S. dollars and currency convertibility pressured states to reduce such controls.
b) Flexible exchange-rates complemented the former, adding liquidity to the system

and increasing international investment.
c) This flexibility reflects other influential political and economic developments,
such as the growing influence of Japan and West European countries, the rise of
the OPEC and the shift to a multipolar security structure managed by the U.S., the
EU, Japan and (later) China.
The rise of the OPEC and the tremendous shifts in the oil price in 73 and 78 transformed the
system into a global one, since billions of dollars moved through new financial channels as the
OPEC states demanded them as payment for oil.
- This increased the demand for U.S. dollars and kept it as the top currency.
- Western banks recycled their “petrodollars” in the form of loans to developing
countries that were seen as good investments due to their increasing demand of
consumer goods and natural resources.
- However, between 1973-1979 the debt of developing countries increased from $100
billion to $600 billion, generating a debt crisis.
Stagflation: slow economic growth accompanied by rising prices (inflation). It was caused in
1980 by trade imbalances in the developed countries.
- Oil prices were going down, and so was the U.S. dollar value.
- U.S. officials tried to stop their domestic inflation by rising interest rates to tighten the
money supply, but it slowed down its economy and caused an international recession.
This was accompanied by a change in philosophy in the U.S. and Britain, as Keynes' ideas were
swept away and replaced with classical liberal ideas of Adam Smith and Milton Friedman.
- Thatcher and Reagan privatized national industries, deregulated financial and

currency exchange markets, cut taxes and liberalized trade policy. These measures
were supposed to increase savings and investments to stimulate economic growth.
- In 1983 economic recovery did begin in the U.S. due to higher rates of consumption,
less restrictive monetary policy and attention to inflation; however, many experts
argue that this recovery was primarily caused by a decrease in oil prices.
- Reagan’s defense budget was the biggest since WWII. This expenditure and a strong
dollar increased prices for U.S. exports and lowered import prices, which resulted in
record trade deficits.
- In order to shrink said deficit, the U.S. pressured Japan and other states to revalue
their currencies.
- Paradoxically, this situation also benefited the U.S. as it attracted foreign investment
in business and real estate. This contributed to correct the deficit and maintain the
value of the dollar and its hegemony against the Soviet Union. Although many allies
did not agree with these policies and pursued a different path.
- By 1985 the U.S. was the world’s largest debtor and the dollar was overvalued. Rapid
capital flows were contributing to volatile exchange rates, which interfered with
international trade.
- Reagan met with the G5 powers (Britain, West Germany, France and Japan) and they
agreed to intervene in currency markets to collectively manage exchange rates so that
the dollar would depreciate in value against other currencies, raising interest rates in
the other economies.
Finally, the US unilaterally abolished the previous system. Countries gradually got on board
during the 1970s.
a) Increasing investment in Europe and financial capital: banks were interested in
capital flows. Then, the fixed ERS was unsustainable.
b) The US and the UK were pioneers in developing their capital flows.
- On paper, there was no hegemonic currency. However, the US dollar remained the global
hegemon, even though it presently has some competitors: many experts thought that the
euro would challenge it when it appeared but it now constitutes only 20% of reserves.
- The reserves are in reliable and hard currencies: British pounds, the Japanese yen
(since 1985, because before it was intentionally weak as it happens now with the Chinese
yen).
- The system is based on market forces determining the exchange rates: the demand and
supply of a currency determine its market price. Then, exchange rates fluctuate
constantly. Now, does it really work this way?
a) Actually, central banks intervene. Then, the system is not completely free, but
rather managed (also called dirty float).
b) Most countries now are part of the managed float system where the CBs are
independent. Since the 1980s there is a major trend that the CBs should be
independent of the government. Reason: governments are responsible for fiscal
policy, and they could be tempted to print money to finance it, creating inflation.
- The IMF did not dismantle: it is still in charge of international monetary stability. Then, it
does check-ups on domestic economies, among other functions.
- The Impossible or Unholy Trinity: Mundell-Fleming Dilemma:
- Countries cannot sustain three of the following, only two of them:

A. Free capital mobility.
B. Monetary autonomy: decisions over domestic monetary systems.
C. Exchange-rate management.
- Example:
a) Bretton-Woods system requires C and B. Then, you cannot have A (capital
mobility) because the demand of currencies would change and hence its price, so
that it could not be fixed. This is why Keynes was completely against it.
b) Gold standard was based on A and C: capital could move freely but currency was
fixed to gold, there was no monetary intervention.
c) Fluctuating system has A and B: capital can move freely and central banks
conduct monetary policy, but the exchange rate is not fixed (market forces).
19TH CENTURY: THE GOLDEN AGE OF LIBERALISM Nota aquí empieza la

magistral
This period gradually developed during the 19th century under the hegemony of Great Britain,
which prevailed until the start of WWI.
a) Great Britain had been the leader and pioneer in the Industrial Revolution.
b) Then, the pound-sterling was the hegemonic currency.
c) As a hegemon, Great Britain was the largest creditor in the world up until 1914; after
WWI, this position was challenged by the US and became the largest creditor.
d) The Gold Standard was the name of the game. It was used by the major powers until
1914 although revived partially in the 1920s.
e) During this time, multilateral transactions increased enormously: migration,
commodity trade and capital flows. All those kinds of mobility particularly expanded in
the second half of the 19th century.
Then, liberal flows were spreading and Britain was pushing the others to join.
f) Multilateral organizations were absent.
The Gold Standard determines Phase I of the modern Exchange Rate System.
a) Currencies who committed to the gold standard fixed themselves on gold as a fixed
exchange rate.
b) This system prevailed between 1979 and 1934 with some breaks:
- 1914-1918: gold standard collapses.
- 1920s-1934: partial resurrection.
- 1931: Great Britain abandons it due to the Great Depression.
c) The Gold Standard provided stability to the international monetary order.

d) During its working time, it was a self-regulated international monetary order which
provided:
- Trust and stability of price levels.
- The inflation levels between 1880-1914 was on average 0,1%, which is
essential because it provides predictability (if inflation levels are higher
the trust would be in danger)
- Convertibility between different currencies, hence lowering transnational
costs. Accordingly, this promoted international trade and capital flows.
Prevailing liberal economic theory led to a self-regulating international monetary order:

corrections occurred almost automatically via wage and price adjustments.
a) If a country had a trade deficit, their gold would be sold to earn money to cover it.
b) Result: tight monetary conditions, limited money printing, rise in interest rates
(supposed to attract investment) and cut in government spending.
c) Domestic and fiscal policy were oriented to the goal of maintaining the
convertibility of the national currency into gold.
In the 19th centuries we observed a gradual liberalization of trade. However, it did not happen
multilaterally: it started unilaterally and later created multilateral agreements.
a) Britain unilaterally liberalized, meaning that it did not need the other powers to
follow their rules.
b) This took place due to conflict of interests between actors within Britain, which gave
birth to different policies.
- In 1815, the Corn Laws that governed the grain trade were reformed. This created
an open debate between protectionism and free trade. By this time, Adam Smith’s
ideas were very prevalent, although some mercantilist ideas remained.
- Between 1841-45 the Anti-Corn Law League was composed by the

manufacturers defending free trade against protectionism: “We must make this
country a cheap country for living”. Agricultural producers wanted protectionism
while manufactured industries wanted to liberalize the market. The argument is
that free trade would lower the prices and the consumers would benefit from this.
- In 1846, the Anti-Corn Law League won over the protectionist interests of the
agricultural producers. These laws were cancelled and Britain was able to
liberalize.
c) Britain pushed others to liberalize and open their borders to free trade. Problem: who
would be willing to compete with Britain?
- The US? It was as an independent nation had been born into mercantilist and
protectionist ideas (Hamilton’s idea of infant industries). The industries were
infant, they needed protection.
- By that time, protectionist lobbies were very influential in the U.S. The
manufacturing vs. agricultural disputes remained: the first were protectionist
because they were late-comers so they did not want to compete with Britain,
but the agriculture sector was very competitive so that they wanted free trade.
Note that this is the opposite to what was happening in Great Britain.
d) In the second half of the 19th century international politics witnessed many bilateral
(note: no multilateral) agreements for trade liberalizations. Those agreements gave
rise to partial liberalization in the late-comers to industrialization, like the US and
Germany.
For all of the above, 1870s-1914 is considered the first phase of globalization. There was high
mobility of goods, capital and people; notice that people’s mobility is relatively restrictive now.
Episode of the collapse of the liberal orders:

a) 1914-1918: WWI. International economic consequence: the fall of the British
hegemony in the world and the US emergence as a major power. Britain became a
debtor and the US, a creditor. At this point, the gold standard, transactions and
international trade as a whole collapsed.
b) During the Roaring Twenties there was a partial recovery, but then in 1929
another major collapse took place: The Great Depression. The impact of this crisis
was very long term (many experts are comparing the COVID economic crisis to
the GD, whose economic impact can be as high as the present one).
c) 1939-1945: WWII.
The gold standard disappeared before the end of WWI (although momentarily resurrected in
the 1930s due to the Great Depression). Britain became a debtor nation and the U.S. dollar
became the strongest currency. Reasons:
a) U.S. acting according to its interests, failing to meet the international
responsibility of their hegemony.
b) Public policy started to reflect the growing influence of labour unions or foreign
investors who were contrary to the classic economic liberals. Governments started
to intervene:
- Purposeful depreciation of currencies in order to generate trade.
- Capital controls: limiting flows of money across countries.
- Keynes: “let finance be primarily national”.
- States found that the economic liberal ideas of self-regulation did not work anymore:
negative effects of capitalism led to an increased demand for protection (i.e. capitalist
failure evidenced during the Great Depression).
- The point is: was the liberal order questioned or longed for? (question for debate)
THE GREAT DEPRESSION
The GD started with the Wall Street Crash in NYC in October, 29th 1929. Terrible outcomes:
a) Major unemployment (e.g. 25% in the U.S., also the UK and other countries in Europe
like Germany with 44%). Example: some historians explain Hitler’s rise to power by the
economic impact of the GD.
b) Also, prices plumbed, the demand went down drastically: finally, oversupply and
inadequate demand became the main problem.
The GD became international very quickly because many counties imported from the US and
many transactions were lost. Example: Brazilians threw their coffee on the ocean (oversupply).
During the Great Depression, the international mon. and fin. structure was in shambles:
a) National interest above international ones policies: highest trade tariffs in history.
b) Non-convertibility of currency due to increasing hostility among European powers
(ultimately led to WWII).
At this time, there weren't any multilateral organizations which could help the countries harmed
by the GD or create new rules for collective action. Then, the international economy was in
chaos and some major players moved to autarchy (again, comparison to the COVID crisis). This
lack moved the post WWII mindset: whenever such a crisis happened, countries realized they
needed to have international cooperation institutions.
- Policy responses to the GD

a) Competitive protectionism.
- In 1929, President Hubert had been recently elected. Though he was a
liberal, he was persuaded by lobbies to implement the Smoot-Hawley
Tariff Act in 1930, the most drastic Tariff Act in US Act.
- This move was mimicked everywhere, and it was even harder in some
European countries.
- International trade volume contracted a lot.
b) Paradox: protectionism did not last in the US and it started to Reciprocal

Bilateral Agreements in ‘34. Between 1934 and 1939, the US had already signed
20 agreements of that sort: it had begun to liberalize. However, the tariff acts
remained intact in many countries.
c) Roosevelt was very critical of Hurbert’s administration. When he was elected

President, he implemented the The New Deal, which represented a revolution that
included:
- Recovery by fiscal stimulus. Governments would create jobs (for
anything), which generate earnings and push consumption and demand.
Demand was considered very important for the US recovery, which
happened fairly quickly.
- Regulation of the finances: financial institutions were regulated with
strict measures. Many banks were closed down after inspections for not
complying with such regulation.
- Social security measures were adopted, which were very new in the US
(they already existed in some European countries). Social security and
employment: not as generous as in Europe. US Social Security Act of
1935
Roosevelt became a “hero” of the 1930s for many, in particular the unemployed or
people who suffered in any way from the country. Cuomo, governor of NY (the
same job that Roosevelt had before being president), expresses the same criticism
for the central government that Roosevelt, and he advocates for the same
intervention policies.
Keynesianism (Keynes’ ideas):

“It is an outstanding character of the economic system in which we live that, whilst it is
subject to severe fluctuations in respect of output and employment, it is not violently
unstable-the evidence indicates that full, or even approximately full, employment is of
rare and short-lived occurrence.” (Keynes, 1936: 249-50)
He contradicted the assumptions of classical liberalism. For example: in reality,
full employment is an exception, rather than long term prevalent.
He also underlined that capitalism was very efficient in its good times but it could get in spirals
of inadequate balance and unemployment, so that state intervention is necessary for capitalist
recovery.
In particular, states must manage demand using fiscal policy tools: taxes and government
spending. This is not socialism, just recognizing some failures of capitalism and thus the
necessity of state intervention.
The Roosevelt administration had started measures of the sort even before the publication of his
ideas, but they later became prevalent for almost 5 decades. Of course, in some countries or
moments, they were more questioned than others (e.g. 1970s) but especially in the 1930s, most
countries applied these ideas.
Accordingly, state intervention replaced the “invisible hand” from liberalism, seeing that the
markets were not recovering on their own.
*Some liberals still argued that they could have recovered on their own in the long term,
but interventionist policies came too quickly.
This new mindset implied:
a) “The state should do something to save capitalism” from its own failures.
b) States should regulate the market and create jobs.
c) States should create social safety nets: social security.
Political outcomes: polarization

a) Both extreme right and extreme right gained electoral popularity in different
countries.
b) Authoritarianism and populism emerged.
WORLD WAR-II
- In terms of international trade, WWII was an episode of collapse for the domestic economies
that took part.
- Before the war ended, the Bretton Woods Conference took place: a meeting where a new
international and monetary system was decided.
a) Goal: European recovery and the creation of an international monetary and trade system.
b) International money and finance was supposed to be connected to peace and

prosperity. This connection will be present in the mindset of the postwar consensus.
There was an overarching spirit of cooperation to overcome consequences of the
GD (competitive currency devaluations, unemployment, etc.). Keynes,
representative of GB, thought that individual competitive efforts rather than
cooperation would hurt them all.
c) This agreement reached complex matters in an unprecedented way in history.
d) The “Bretton Woods Trio” was created:

- The International Monetary Fund (IMF)
- The Bank for Reconstruction and Development (World Bank)
- The General Agreement on Tariffs and Trade (GATT).
e) At the table of negotiations

- US delegation: Harry Dexter White. The US wanted stability but they were
not willing to invest very generously. They were the largest creditor and a
political hegemon, but a very cautious one.
- British delegation: Keynes. He thought that the rich countries had to

participate in international problems and take responsibility when it came to
financing.
f) Aims:
- Maintain prosperity and peace.
- Avoiding another war and a depression: recent memory of GD and WWII.
They thought that collaboration was essential to avoid them.
- Fostering economic growth.
- Creating cooperation among the Western Bloc: containing communism.
g) Problem: who should bear the cost? Debtors (Dexter White) or creditors (Keynes)?
THE POST-WAR ECONOMIC ORDER

- A multinational order was formed in 1944 (Bretton Woods).
a) This will be based on an institutionalized cooperation: there are certain rules of
the game.
b) The hegemony of the US (Pax Americana) prevails.
At an international level, resetting the liberal order meant:
a) Intertwined association between prosperity and peace.

- Recovered belief in the benefits of freer trade.
- Yet, there was one distinction with 19th century free trade: capital controls
(for example, Keynes was very conservative on this).
- Keynesian compromise: a collectively managed financial system, while
keeping domestic autonomy.
b) Institutionalized cooperation based on the US hegemony but also a new

multilateral order: multilateral actors (e.g. IMF, GATT) tied states’ hands by
setting the rules of the game.
At a domestic level:
a) Internalized fear of unfettered markets: no trust on the invisible hand

- State interventionism
- Keynesianism to varying degrees
b) Establishment of social safety nets: social welfare states.
c) This was all marked by the collective memory of the interwar period as a whole,
including: WWI, GD, competitive protectionism and WWII.
As a pack, this constituted the postwar consensus:
- Free trade (except for capital flows)
- State interventionism: welfare
- International organizations: multilateralism.
LECTURE 3 - POST-WAR CONSENSUS: INSTITUTIONALIZED

COOPERATION, THE BRETTON WOODS TRIO AND THE
INTERNATIONAL TRADE REGIME
The postwar consensus was very based on the “Bretton Woods Trio”:
a) The Bank for Reconstruction and Development: it is the World Bank now.
b) The International Monetary Fund: still exists.
c) The General Agreement on Tariff and Trade: predecessor of the
WTO. All three have evolved in time.
With the start of the Cold War, the postwar world was a bipolar order. In this context, the mission
of the Bretton Woods trio was:
a) Maintaining prosperity and peace: avoiding another war and a depression. The
collective memory of the chaos from the war and the GD determined the idea of
establishing certain rules of the game.
b) Fostering economic growth as a consequence of peace and prosperity.
c) Attaining cooperation and interdependence within the Western bloc. Within the
Eastern bloc led by the USSR, different institutions existed (with similar goals).
Pressured by the U.S., the IMF modified the gold standard for the fixed-exchange-rate system
a) Characteristics of the fixed ERS:
- Open to market forces but not divorced from politics.

- Fixed rate: one ounce of gold - $35.
- Other currencies fluctuate against the dollar according to supply and
demand.
- States can intervene to keep the currency values within 1% above or below
par value (this is the fixed exchange rate).
b) The IMF defined trading bands within which the currencies could fluctuate; if their
value increased or decreased outside those limits, the central banks were to
intervene buying or selling their currency with the dollar in order to reestablish a
supply-demand equilibrium. Countries (U.S. included) could also buy and sell gold
to settle their accounts.
In sum, it was a quasi-self-adjusting mechanism.
c) Confidence and stability: dollars could be converted to gold as a set price, and
after WWII, the U.sS. had the largest amount of gold backing. Economic and
political stability led to Western European and Japanese recovery; at the beginning
of the Cold War, the U.S. dominated a liberal-capitalist system and aimed to divide
it from the Soviet-dominated Eastern Bloc, where capital movements were very
limited.
d) The U.S. dollar became the top currency: it was very demanded for international
trade in all Western Europe, which provided many privileges to the U.S. It also
became the reserve currency that was held in central banks.
The making of the Bretton Woods system (fixed ERS) solidified the US hegemony: “Pax
Americana”.
a) The US was an active but cautious and reluctant hegemon. It pushed the others to
comply with the rules of the game but it was reluctant to set them very tight because
they did not want to restrict themselves too much.
b) Their role was to guarantee certain collective goods:

- Collective security: in a bipolar world order (Cold War tensions), this
collective good was very vinculated to the goal of containing communism.
This goal led to the establishment of NATO.
- Liberal (relatively) international trade. When it comes to liberalization
of markets, it's not all or nothing: however, at Bretton Woods it was
decided to go towards “freer” international trade.
- A smoothly-functioning international monetary system: the fixed ERS
or dollar standard as a very important pillar.
c) Problem: the chaos of not having a “lender of last resort”: Britain had lost the title
of largest creditor and in the interwar period it had been the US. Finally, it was
decided that the “lender of last resort” should be the IMF.
d) Now, to what extent was it a “benevolent hegemon”?
- Their aid to European post-war recovery played a very important role in

its legitimization as a hegemon. The main instance of this was the
Marshall Plan: Western European countries were aided to different
degrees (first UK, then France, Western Germany, Greece and Turkey).
- For the US, the European recovery was very important. Their growing
economy really depended on reliable capitalistic markets for international
trade and foreign investment. Then, the Marshall Plan was not purely
“benevolent”: it was in the direct interest of the US, as General Marshall
justified before the US Congress.
The International Bank for Reconstruction and Development: today “The World Bank/the
Bank”.
a) In the Bretton Woods Conference, it was created to aid European postwar recovery.
b) After de-colonialism, it became oriented to new developing countries.
c) Bretton Woods Conference document quotes:
- “The Conference has agreed that expanded international investment is
essential to provide a portion of the capital necessary for reconstruction
and development”.
- “The nations should cooperate to increase the volume of foreign
investment for these purposes, made through normal business channels. It
is especially important that the nations should cooperate to share the risks
of such foreign investment, since the benefits are general”
d) In other words, the nations should establish a permanent international body to
perform these functions, to be called the International Bank for Reconstruction and
Development: later, the World Bank/the Bank.
The International Monetary Fund

a) It operates to facilitate the smooth functioning of monetary transactions and the
international financial and monetary system as a whole.
b) Bretton Woods Conference document quotes

- “Because these monetary transactions are international exchanges, the
nations must agree on the basic rules which govern the exchanges if the
system is to work smoothly.”
- “... When they do not agree,… the result is instability, a reduced volume of
foreign trade, and damage to national economies. This course of action is
likely to lead to economic warfare and to endanger the world's peace.
The Conference has therefore agreed that broad int’l action is necessary to
maintain an international monetary system which will promote foreign
trade...[the nations] should assist each other to overcome short-term
exchange difficulties.”
c) The IMF promotes international cooperation and stability based on:

- Expansion of international trade: it happened drastically after the war.
- Maintaining a stable exchange rate system.
d) A functioning, low-cost and credible ERS was considered a requirement not only for
economic prosperity, but in order to guarantee peace. The, IMF would be the
supervisor, providing:
- Surveillance and technical assistance to member states.

- Temporary financial assistance to members to ease balance-of-payments
difficulties.
e) Ultimately, the IMF should help maintain prosperity and peace.
As the lender of last resort, the IMF has been providing financial assistance and debt service
relief to members.
a) Right now, it is very active trying to alleviate the economic impact of the COVID-19.
Even in pre-pandemic normality, the IMF does provide assistance to countries with
current account deficits.
b) However, there are many critics:

- South Korea (1997-1998): after a successful economic development in the
80s, in the 90s it had a deep economic crisis as a consequence of a
financial crisis in Taiwan.
Many protesters contested the IMF: even there, the IMF still provided
financial assistance. Anxiety over losing sovereignty due to this
assistance: “ask the Korean people first”.
- Argentina: “No al FMI”. In the whole Latin America, the IMF is awfully
unpopular. Argentina is one of the leaders of receiving assistance, but the
people protested a lot.
c) If they are as generous, why do they protest?

- Belief that the US controls the IMF: threat on sovereignty.
- Assistance comes from conditions that must be accepted: countries that
ask for this help must comply with the conditions set by the IMF, which
are supposed to help the country recover.
- Then, there is an imposition of economic policies that the countries’
governments did not choose.
A majority of 85% is needed to make changes in the IMF. If we take a look at the IMF voting
shares
a) US: 16,73%. It helds a veto right.
b) Japan 6%.
c) Germany: 5%...
This is very much contested, not only by the protesting people from before, but a lot of important
countries themselves: India, Russian Federation, etc. The power distribution in other institutions
(e.g. the WTO) is very different, because all countries are (on paper) equal (see next lecure).
After the Post-war consensus was agreed upon, the following huge economic growth was named
“the Golden Age” (1950-1973).
a) Outstanding growth until 1973. After 1973, growth slowed (due to the oil crisis).
b) World trade also increased continuously more than four times until the oil
crisis.
The ITO and the GATT.
a) In 1947, at Bretton Woods it was agreed that the International Trade Organization
(ITO) would be created as a third institution.
- It would be much more comprehensive than the nature of the GATT: an actual
multilateral institution with detailed rules, decision-making mechanisms and
intrusive instruments for intervening in the domestic sphere (e.g. competition
policy…).
- As a reluctant hegemon, not wanting to tie its own hands, the US Congress did
not ratify it in the Congress. Without the hegemon as a party, the ITO did not
make sense anymore, and hence it was not put into practise.
b) The GATT was conceived as a temporary agreement, but after the ITO failure it turned
into the sole multilateral instrument in trade from 1948 to 1995. Consequently, it
became a negotiating forum for reducing tariffs and other barriers, even though it was
not really a proper organization but rather just an agreement.
- In 1948, it had 23 founding contracting parties. The first Session was held in
Havana, Cuba. After their respective revolutions, China and Cuba would
withdraw.
Now, the WTO has 164 members.
- Goal: correcting the legacy of protectionist measures. Its base entailed fears of
war, the Great Depression, etc. Free trade was thought to be connected to war.
a) Memory of the spread of protectionism and preferential treaties in the
1930s: “the beggar-thy-neighbor policies” were considered very risky.
b) Also, the widespread use of discrimination in trade in 1930s was to be
avoided, meaning that no advantages could be given to preferred trade
partners.
c) Protectionist legacies that remained:
- Britain: Imperial Preference System. “Home producers first,
empire producers second, and foreign producers last”.
- France: preferential system with colonies.
- Germany: preferential trade agreements with Eastern Europe.
- US: two contradictory moves
a) Smoot-Hawley Tariff Act (1930).
b) Bilateral agreements (1934-40): opening up again thanks
to the Roosevelt Administration.
c) The Reciprocal Trade Agreements Act (RTAAs): re-
liberalization (to some extent) of trade. This Act changed
the decision-making institutions and it implied delegating
more authority to the president to lower tariffs, in case of
reciprocal reductions.
- GATT commonly accepted principles.

a) Overarching norm: multilateral negotiation and free trade.
b) The most-favoured nation: all advantages and concessions for the

most favoured nations would be extended for all member countries.
c) National treatment: all imports will be treated as domestic

products in the domestic market, concerning taxes, rules, etc. This
prohibited governments from using measures (e.g. subsidies, taxes,
etc.) to provide advantages for domestic firms at the expense of
foreign products.
d) Reciprocity: governments should extend similar concessions to
each other when they make an agreement.
*Note: these principles can be costly and countries often contradicted them;
also, there were important exemptions under the GATT rules.
- How did the GATT operate? It is not an organization per se (no board or
Secretariat) but a negotiating platform. Modus operandi:
a) Ministerial conferences
b) Rounds of discussions, negotiations, etc. aiming for freer trade.
c) The forum was based on “shared” norms and principles: however,
these rules of governance were weak and ambiguous.
- On paper, GATT decision making was:

a) Member-driven and consensus based: there was no board of
directors and the members stranded on equal foot.
b) Single Undertaking Principle: “nothing is agreed until everything is

agreed”.
c) Flexible rules and exit options prevailed for the decades, even
contradicting the very spirit of the GATT which was liberalization.
- New protection instruments were justified for retaliation.
- Many exemptions were adopted, challenging the GATT
founding principles.
LECTURE 4 - THE EVOLUTION OF THE INTERNATIONAL TRADE

REGIME. WTO: DESIGN AND OPERATION.
POLITICS OF A QUASI-JUDICIAL TRADE REGIME
Summary
- The IMF and the Bank: brief clarification
- The evolution of the trade regime
a) From the GATT to the WTO.
b) Design and operation of the WTO.
- The politics of a quasi-judicial trade regime
a) “Legalization” and its diverse consequences.
b) Dispute settlement and its operation.
BRIEF EXPLANATION OF THE FUND AND THE BANK Nota de la autora (de estos
apuntes): esto es para clarificar conceptos de la clase anterior, os lo dejo por si acaso pero
estrictamente lo podéis pasar
- The IMF or “the Fund”:
a) It is a cooperative institution. It was created as the supervisor of the Bretton
Woods system and more broadly, it was funded as a supervisor of a smoothly
functioning international monetary system.
b) The members would cooperate to maintain an orderly system of payments and
resceptis between nations so that any crisis emanating from the balance of
payments does not result in an international system
c) In order to do so, besides surveillance it would provide technical and (temporary)
financial assistance (particularly for countries with problems in its balance of
payments). The assistance would be linked to certain conditionalities set by the
IMF, which have been difficult to comply for the member countries. This is one
reason why the IMF has been criticized and has a lot of detractors.
d) It also aims to foster growth and employment, creating a healthy global economic
environment.
e) Rather than a Bank, it is more a “credit union” of pulled resources where the
members pay quotas in order to gain voting rights, causing contentions in the
world economy.
Non-disguised inequality between members
- No principle of one member-one vote.
- Also, the US has a veto power.
- The World Bank
a) It is an actual bank which finances projects worldwide.
b) It fulfills the functions of an investment bank: rather than providing the money
themselves, it mostly acts as an intermediary between investors and projects. It
guarantees good rates to ensure beneficial investments for both parts.
c) As a development bank, one of its major goals is to alleviate poverty worldwide.

d) Structural adjustment: in the last decades, the IMF and the Bank started working
together to assist countries which were going through financial crises. Then, funds
that came from the Bank and distributed by the Fund and entailed conditionalities.
This is why they are perceived as intermingled institutions.
THE EVOLUTION OF THE TRADE REGIME

1. SUSTAINED PRINCIPLES: from the GATT to the WTO.
The GATT was not an institution but rather an agreement, which ultimately became the only
negotiation platform until the WTO was founded.
- Major principles (see previous lecture):
a) Overarching norm: economic liberalism, particularly free trade.
b) Most-favoured nation: against discriminatory practices.
c) National treatment: imports treated as domestic products. The GATT prohibits
governments from using measures to provide advantages for domestic firms at the
expense of foreign products. Conversely, treatment of domestic and foreign
products versions of the same products, known as “like products” should be
similar after they enter the domestic market.
*Note: important for Biden vs. Trump. They both support protecting their
manufacturer industries (through subsidies), which is against the WTO.
d) Reciprocity: extend similar concessions to each other.
- Class debate. Multilateralism vs. Regionalism: Building or stumbling blocs?

a) The “spaghetti bowls” is a concept from political science that refers to the
current chaos of preferential regional trade agreements. See in the chapter.
b) Inevitably, some of these preferential agreements entail conflicts: besides their

membership in the WTO, they are “discriminating” against other countries.
- Preferential or Regional Trade Agreements (RTAs can be understood as a subtype of

PTAs) can be bilateral or plurilateral. Also, they can include:
a) FTAs (free trade agreements): members eliminate tariffs on trade with each other
but retain autonomy in determining their tariffs with non-members.
b) Customs Union: a group of countries that eliminate all tariffs (depending on the
agreement, they could eliminate non-tariff barriers too) among themselves but
maintain a common external tariff with third parties.
Example: the EU has eliminated both tariff and non-tariff barriers (Single
Market) and it has a Common External Tariff (CET) for external parties. This
represents quite a blunt descrimination that contradicts the GATT principles.
MERCASUR: as a response to NAFTA. Also, a free trade agreement of the whole
of America which has never been fulfilled.
c) In the Cold War context, the customs unions became tolerated and incorporated as
an exception.
Some examples from the graph:

- EUCU: The Custom Unions Agreements includes non-EU countries like Turkey
and Andorra.
- EACU: the EuroAsian Customs Unions is mainly run by the Russian Federation
(old Soviet countries).
- GCC: Gold Cooperation Custom
- EAC: EasternAfrica Custom.
- CEMAC: Economic and Monetary Community of Central America
d) The next map is from 2018, which illustrates the complex nature of the EU trade
in particular. The EU is an actor on its own at the level of the WTO but, despite its
own members being members of the WTO, is has signed a lot of free trade and
preferential agreements (e.g. North-African countries, the agreement with Mexico
which is being modernized now, etc.).
- Then, dispute the non-discrimination principle has been defied.

a) This started as a geopolitical strategy against the Eastern Bloc during the Cold
War, so that the US tolerated.
b) Then, the US had to confront a very important contester: the EU.
- Also, other major exemptions to the GATT principles:

a) The Generalized System of Preferences (GSPs) allows the advanced
industrialized countries to apply lower tariffs to imports from developing
countries than those from advanced countries.
Example: India was a main lobby for this exemption, which benefited
from lower tariffs on exports to developed countries but then could
maintain such high tariffs when importing from them.
b) Then, developing countries did not have to reciprocate.
c) The “Harberler Report” (1957) was commissioned by the GATT to undertake a

study on relative terms of trade for primary commodities and manufactured goods.
They found that the terms of trade (relative price of exports/imports) for primary
producers in developing countries would be adversely affected if they continued
to
free trade agreements on equal footing. This was a turning point that led to the
establishment of the GSPs.
d) The WTO provides a list that includes the countries that qualify to be benefit from
GSPs.
- How did the GATT operate?

a) Intergovernmental bargaining platform.
- Member driven:
a) No board and no quotas.
b) Consensus-based. No veto power of any member.
- Modus operandi: ministerial meetings (still in the WTO).
b) Forum based on shared norms and principles.

- Yet, their rules were quite flexible: GATT had no real enforcement power.
Some members complied but others (quite commonly) did not.
- Also, a lot of exemptions deviated from its original spirit.
c) Both the GATT and the WTO have been considered the most “democratic” of all
Bretton Woods institutions: everyone enters on equal footing (on paper).
d) New instruments of protection and “retaliation” (represalias): if there is a

complaint against protectionism, they can also protect their markets by means of
retaliation.
- The Rounds of discussions and

negotiations aiming for freer trade
became the common practise.
- The name of each Round comes

from the date and place from
where the negotiations started:
there were others following which
could happen in other places.
An exception would be Kennedy
round, which was not named after
a place but rather in the memory
of JFK after he died, because he
was a very firm believer in free
trade.
GATT/WTO ROUNDS Nota: ella en clase solo explicó la de Uruguay; el resto son del texto
- Annecy (1949), Torquay (1951), Geneva (1956) and Dillon Round (1960-1): important
institutional matters but not much progress towards liberalizing trade.
Reasons:
a) Slow European recovery after the war.
b) European currencies were not made fully convertible until 1958: low international
competition.
c) The US was the preponderant actor, who offered most of the tariff concessions.
- Kennedy Round of 1963-7: first significant GATT negotiation since 1947.

a) First negotiation where the European Community participated as a single unit.
b) First major transatlantic negotiation between America and Europe on an apparent
basis of equality and reciprocity.
c) New topics were introduced:
- Agriculture: very intervened until then. Problem: disagreement between the
US and the EU limited this progress.
- Special treatment for developing countries:
a) Significant cuts in industrial goods in developed countries; food aid.
b) Anti-dumping code to standardize national policies and prevent unfair
competition
c) Agreements on established price ranges.
First negotiation to explicitly address developing countries concerns,
culminating in the formal endorsement of the principle of non-reciprocity
for developing countries.
- Non-tariff measures:
a) Initially unsuccessful until the 1970s international monetary chaos.
b) Response to Japan and newly industrializing economies (NIEs) which
resurrected fears of trade protectionism and convinced national
governments to begin a new negotiation in the GATT.
- Tokyo Round (1973-9): most comprehensive and far-reaching results since 1947. Three
categories:
- Non-Tariff Measures: most important part.
a) They covered: customs valuation procedures, import licensing,
technical standards for products, subsidies and countervailing duty
measures, government procurement and anti-dumping duty procedures.
b) Failed negotiations on safeguards.
c) Goal: constitutional reform of GATT law to improve openness,

certainty and non-arbitrariness.
- Tariff reductions
a) Main issue in the previous multilateral negotiations, so that they
were not the focus of the Tokyo Round.
b) Yet, these reductions reached the same levels that the Kennedy
Round had.
c) Agriculture was again intractable: the US and the EC agreed to
remove it from the negotiating table halfway.
- Revisions of GATT articles in the interest of developing countries
a) Brazil initiated these negotiations intending to clarify the GATT
obligations and ease them for developing countries.
b) The revised articles were the named “framework” agreements
which covered: safeguard actions for development purposes, trade
measures taken to correct payments deficit, export controls and
deviations from MFN.
c) Major outcome: “Enabling Clause”, which allowed GATT
signatories to accord differential and favourable treatment to
developing countries (not extensible to the other countries)
d) Developing countries were still disappointed after the Tokyo
Round because it did not recognize the non-tariff measures that
developed countries used to protect their markets.
Tokyo Round as a turning point:
- Large number of developing countries negotiating: unprecedented in GATT,
set the scene for the Uruguay round.
- Extent of multilateralism for managing the international trade system.
- Not limited to reduction of tariffs: rule-making exercise of major proportions.
- Its agreements constituted legal rules that reached further into the nation
state, deeply impacting domestic regulations.
- Uruguay Round: most contested round (before Doha): foundation of the WTO. A lot of
backsliding happened
a) Fights between Australia and the US regarding subsidies for agriculture.
b) Similarly, the EU and the US did not want to let go of their agricultural policy
independence.
c) Major change: textile and agriculture, which had not been included in the GATT,
were included in the WTO.
- Doha Development Round: this round did not “really end”, or rather, it did without
producing any result.
a) Aim: implementation of some agreements adopted by the WTO which had not
been implemented yet.
b) Priority of sustainable development goals and particularly the market access of
developing countries for northern ones: e.g. agriculture, recently incorporated to
free trade.
c) In 2007, negotiation broke down as neither the EU nor the US were willing to
provide developing countries with subsidies or concessions on agricultural
subsidies. This led to a profound malaise among developed countries .
d) After this failure, comments about a crisis in the hotbed of the WTO arose. To
tackle this crisi, WTO organized a new meeting in 2013, which get to some
solutions. This was known as the Bali Package. The Bali package included a new
Trade Facilitation Agreement, a decision on LDCs and a decision on agriculture .
e) The 2015 Nairobi Conference led to the elimination of export subsidies in
Agriculture. However, the success of this conference was at the cost of accepting
the lack of consensus in the Doha Conference, since many countries did not ratify
it.
f) The greatest immediate challenge for the WTO is the potential demise of its
negotiation function. Disagreement over market access for agricultural goods,
manufactures and services has been at the heart of deadlock in the Doha round.
Now, why establish an international institution which would tie states hands?
a) Prisoner dilemma
(example)
Note protecting is a dominant strategy and

then the equilibrium would be at P/P;
however, both countries would be better
off under the outcome L/L.
b) Then, in order to resolve a cooperation problem between states given a

hypothetical anarchic environment in the international arena, the creation of an
institution was deemed essential to resolve such problems of enforcement,
monitoring and sanctioning.
c) The WTO was established in this spirit. However, we will see to what extent it has
been able to fulfill this role.
- The Hegemonic Stability Theory explains how to sustain an open trade regime:
a) An open international trade regime is considered as a public good. This faces
a free rider problem: since by definition, it is a non-excludable and nonrival good,
it is in everybody’s interest to benefit from it but no one would pay the cost.
b) According to this theory, it is in the hegemon’s interest to invest in building and

sustaining and international trade regime:
- Strong interests in the stability of the trade regime: after the fall of the
USSR, the US should be interested in cooperation with other countries to
maintain this new, stable system.
- Historical data supports this theory: the US did invest in protecting the
regime.
Present question: what happens with the Chinese rivalry and the defy of the WTO?
From GATT to the WTO: what is new?

a) Specially, the widening of the trade regime has incorporated more players (164). Today,
most countries are members of the WTO.
New players brought great diversity which entailed challenges:
- New members had different markets, institutions, interests and power constellations.
- Interests and priorities started to conflict: coinciding with N-S conflict.
Example: TRIPs, Agriculture, Access to the North,
etc.
For example, this cartoon represents rich nations colliding with

MNCs under the WTO at the expense of the poor nations.
b) Deepening of the trade regime

- New sectors: agriculture (untouchable until then) and textiles (exported by
developing countries).
- Institutionalization and formalization: binding rules, transparency and more
information.
- Institutional harmonization:
a) Competition policy (domestic)
b) TRIPS: Trade-Related Intellectual Property Rights
c) TRIMS: Trade-Related Investment Measures
d) GATS : General Agreement on Trade on Services
- Legalization: according to Oatley, “the WTO brings the rule of law to bear in
international trade relations”. Actually, this is an exaggeration to the extent that the
rule of law implies an enforcement power that the WTO does not have; however, the
Dispute Settlement Understanding (legal document that regulates the WTO dispute
settlement process) was started to be written.
DISPUTE SETTLEMENT UNDERSTANDING:

The process proceeds as follows:
a) One member requests consultation with another member over alleged violations of WTO
law.
b) If consultations fail to produce results within 60 days, a panel is established and a legal
process of adjudication begins.
c) Once the panel is established, the members may submit an appeal on legal questions before
the panel report is adopted by the DSB
d) If a member is found to have violated WTO law, it is expected to bring its domestic trade
policy regime in line with its WTO obligation
e) If it doesn’t, it has to enter in negotiations with the competing country so as to find a

plausible solution.
f) If these negotiations fail within 20 days, the complaining members may request
authorization to suspend the application of the Member concerned of concessions or other
obligations under the covered agreements
- Quasi-judiciary status: to secure a “positive solution” to the dispute (art. 3.6 DSU).
However, the DSB is prohibited from engaging in judicial lawmaking , as concessions
and trade rules can only be made by members
- The WTO’s rules-based system depends on the members’ acceptance of legitimacy
of the DSM. Also, the system of complaint and consultation was established with the
idea that the preferred outcome would be to reach a mutually agreed solution. If that did
not happen, the DSU procedures would be applied.
- Problem: since December 2019, the appeal is blocked due to the US.
CHALLENGES TO MULTILATERAL TRADE
- Regional Free Trade Agreement is coming as a potential challenge to the worldwide

multilateral trade regime WTO has tried to established since 1995
- The bargain at 21st century regional trade agreement is foreign factories in exchange for
domestic reforms, not exchange of market access
- The emergence of twenty-first century regionalism entails a number of potential risks,
including the erosion of global trade rules and the return to a fragmented pre-Second WW
system of trade governance dominated by the great powers.
- This is problematic because most challenges must be solved through multilateral agreements
and not regional ones (e.g Climate Change)
- To tackle this issue, many experts have said that to revive the WTO’s rule-making system,
more flexible approaches to decision-making allowing groups of members to move forward
their agendas inside the use of plurilateral agreements, should be established, as done in the
Tokyo Round
- However, there is a concern among developing countries that a plurilateral approach would
lessen the possibilities for trade-offs within the WTO.
LECTURE 5 – CHALLENGES AND CONTESTATIONS ABOUT THE

WTO
Summary: evolution of the WTO

- Legalization and outcomes: DSB
a) Presentations
b) Stakeholders
- The N-S Conflict: the Doha Round.
Trade wars and ongoing crisis
a) Deadlock in the trade regime.
b) The end of the WTO?
Example: How come the Peruvian sardines overcame the trade barriers whereas the
Vietnamese cattish could not? Davis text:
Dispute Peru vs. EU: the EU had a barrier against Peruvian sardines through label regulations,
but the WTO ruled in favour of Peru. This is how Peruvian sardines entered the European
Communities.
However, the catfish from Vietnam could not enter the American markets.
Davis’ article argues that both products were subject to food labelling domestic regulations,
which was used as an instrument for NTB (non-tariff barrier), providing a kind of disguised
protectionism.
Then, what is different between the Vietnamese catfish and the Peruvian sardine? They are
similar countries economically, but Vietnam was not a WTO member.
- Articles cited: Most Favoured Nations, Technical Barriers to Trade and Anti-dumping.
According to Davis, the DSU of the WTO is very beneficial because it provides them bargaining
leverage. Also, they have the possibility of legal bandwagoning: becoming a third party
supporting powerful countries.
- Legal adjudication: according to Davis, developing countries gain better outcomes,

overturn protectionist measures in the EU and US through 4 distinct mechanisms:
a) Guarantees for the right to negotiate: this is a right that Peru had and Vietnam did not.
b) A common standard for evaluating outcomes: less importance of market power.
c) The option to join a dispute.
d) Incentives to change a policy violating trade rules.
- The stakeholders in Davis Reading. Particular actors and their lobbying acts:
a) Association of Catfish Farmers of America (CFA): “catfish caught in the filthy
rivers of the Third World”. They argued that the Vietnamese catfish that had entered
the markets was not the same as the American one, so that it could not be named as
such.
b) The American Seafood Distributors Association did not agree with the CFA: note
that in the same country, we have winners and losers of the protectionist measures.
c) The Vietnam Association of Seafood Exporters and Producers (VASEP).
d) The UK Consumers’ Association: in the case of Peruvian sardines, this association
was in favour of Peru (as a very pro-free trade association).
1. SOME WTO AGREEMENTS

- The Technical Agreements to Trade (TBT) Agreements
a) In the context of deepening of the WTO, this agreement “aims to ensure that technical
regulations, standards, and conformity assessment procedures are non-discriminatory
and do not create unnecessary obstacles to trade”.
b) It does not restrict WTO members the right to implement their own measures, as long
as they are aiming to achieve “legitimate policy objectives, such as the protection of
human health and safety, or protection of the environment” Then, members must justify
their policy goals.
c) Also, this agreement encourages members to base their measures on international
standards as a means to facilitate trade. Through its transparency provisions, it also
aims to create a predictable trading environment
d) In sum, technical regulations remain a domestic competence, but they cannot be used to
restrict free trade.
- Anti-Dumping Agreement (ADA):

i. Anti-Dumping principle: “If a company exports a product at a price lower than the
price it normally charges on its own home market, it is said to be “dumping” the
product”.
ii. The WTO Agreement does not regulate the actions of companies engaged in
“dumping”. Its focus is on how governments can or cannot react to dumping — it
disciplines anti-dumping actions, and it is often called the “Anti-dumping
Agreement”.
iii. In particular, it authorizes the imposition of a specific anti-dumping duty on imports

from a particular source, in excess of bound rates, in cases where dumping causes or
threatens injury to a domestic industry, or materially retards the establishment of a
domestic industry.
iv. Example: the catfish from Vietnam was subject to Anti-Dumping regulations. The
fish was not considered the same fish as the American ones, so that the Vietnamese
dumped their prices in order to compete in American markets.
Then, if the cheap catfish from Vietnam causes an injury to the domestic firms,
the agreement authorizes the US to take protectionist measures.
2. FUNCTIONING OF THE WTO: THE APPELLATE BODY
- The Appellate Body was established in 1995 under Article 17 of the Understanding on
Rules and Procedures Governing the Settlement of Disputes (DSU).
a) a standing body of seven persons that hears appeals from reports issued by panels in
disputes.
b) AB can uphold, modify or reverse the legal findings and conclusions of a panel,
and AB Reports, once adopted by the DSB, must be accepted by the parties to the
dispute.
c) The U.S. blocked the reappointment of judges in 2011, 2016 and finally in 2019. In
December 2019, the U.S. blocked the reappointment of judges.
- The Trump Administration is proud of this fact because they felt that they could not act
on the US interests. Also, in 2011 (during the Obama Administration) and in 2016 they
introduced a blockage process using very similar justifications. Then, there is a kind of
continuity between different administrations, even though democrats supposedly defend
multilateralism
a) News from September 2020: «The U.S. announced it will appeal a recent WTO
decision in the long-running lumber dispute. ..the U.S. is doing appealing into the
void
— turning over the case to an institution that doesn't actually work
b) ...the U.S. knows the WTO's appeals body doesn't work because it intentionally broke
the panel by blocking the appointment of judges. This has deprived the top court of
world trade of the ability to issue rulings, which critics say amounts to sabotage. ».
- Another limit to the WTO functioning is the Director General:

a) Roberto Azevêdo: from Brazil, which insisted a lot that someone from the South
became the WTO Director General. Until then,
b) He stepped down before his legislature ended, in the context of the WTO
deadlock. There was no official declaration, but rumours suggest that he did it as a
protest of the blockage by the US.
c) Then, there is an important vacancy position. There are now two current candidates:
i. South Korea: Yoo Myung-hee.
ii. Nigeria: Ngozi Okonjo-Iweala.
3. THE WTO AFTER THE DOHA ROUND
- The DOHA Development Round 2001
a) Why did it take so long to launch a new wound?
i. Prevalent contestations and widespread protest.

ii. The first round could have been the Seattle Round (1999), but the
ministerial conference had to be moved due to mass protests. There were
many kinds of sectoral organizations: NGOs, associations, etc.
iii. Now, was there a sudden coalition from the South? Not necessarily:
Southern activists did not have the resources to send protesters there;
most of the protesters were based on the US.
iv. Doha, on the other hand, is in Qatar, which could be more peaceful.
b) The Doha Round was called the Development Round. It focused on developing
countries access to the markets of the developed countries. Objectives:
i. Undertaking major reforms in the international trade system.
ii. Improving the trading prospects of developing countries, enhancing their

market access.
iii. Implementing the current WTO agreements: the WTO was founded with new
agreements but some of them had not been implemented, due to new specific
sectors (e.g. agriculture and services).
- Challenge: deadlock in the trade regime. The Doha Round came to a collapse. The
deadlock included:
a) Some disputes without a settlement.
b) Some disputes with settlement but without implementation (or incomplete one).
Limit: the AB decisions cannot be directly enforced by the WTO.
c) The settlement entails clauses which might work against the foundational spirit of the
WTO/GATT. Enabling “retaliation”
d) The deadlock includes the international structure
4. UNRESOLVED ISSUES AT THE WTO
- Widespread protectionism: both overt and disguised. The agreements that foster this
protectionism include:
a) The Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS)
b) Safeguards: particularly used by the US but also the EU.
c) Subsidies & countervailing measures: contradicting the WTO of national treatment.
Very important in agriculture.
d) The Anti-Dumping Agreement : almost any price can be considered as a dumping
price.
e) Technical & sanitary standards (TBT, SPS)
- All of the above enhances the N-S Conflict, in particular limiting the access of
developing countries to international markets.
Ex-President Lula da Silva was very active protesting this:
a) “The nations that are rich today are rich only because of the opportunities they have
had in the past. If those nations wish to be true to their past successes, they cannot and
must not put barriers in the way of developing countries”. World Economic Forum
(2003).
b) “We want free trade, but free trade that is reciprocal. Any export efforts we might
make will be worth nothing if the rich countries continue to preach free trade and
practice protectionism”.
c) “Sectors in which developing countries have much more competitiveness such as in
agribusiness, the textile industry, the steel industry, among many other sectors, are
subject to protectionist trade practices from the highly industrialized world”
- Also, OXFAM suggests a very similar argument: “rules of international trade are
rigged in favour of the rich”.
a) Robbery against the world’s poor.
b) “What is happening today is not just indefensible, it is also unsustainable”.
c) “Trade theory predicts: poor will benefit from trade, but theory has been confounded
by reality”.
OXFAM is a confederation of 17 like-minded organizations working together with

partners and allies to bring about lasting change. OXFAM is based in Oxford and it is a
pro-free trade organization. However:
a) Ship in front of the Eiffel tower or pumpkins on the Seine: protest event where farmers.
b) “Struggling farmers say plunging food prices and soaring costs are destroying their
livelihoods and leaving many on the brink of bankruptcy”
c) Then, free trade in agriculture brings important costs
OXFAM explains this as a “double standards index”: Asking for trade liberalization yet
restricting market access.
a) Cost of tariffs are higher than that of the aid.

b) “Trade barriers imposed on the poor: 100 bn USD/yr.”
c) Export growth would be better for developing countries than aid
OXFAM proposals include:

a) Market access to fight against poverty
b) End the IMF/ World Bank programs which force poor countries to open up at the
expense of hurting the poor
c) Democratize the WTO: so that the poor have a voice (as a proper member-based
organization as it is as supposed to be).
d) Take the TRIPS out of the WTO
e) Eliminate the double standards: the worst offender would be the EU with the CAP
i. The Common Agriculture Policy (CAP) is a major obstacle for developing

countries.
a) It is one of the major items in the EU budget.
b) Producer support programs: overt and disguised protectionism

i) minimum price arrangements
ii) intervention buying and storage
iii) direct subsidies
iv) export subsidies
v) production quotas
ii. A acritical take on the CAP: “Cows can fly upper class on common
agricultural fare”.
The Catholic aid agency Cafod says that the figures highlights the absurdity of Europe’s farming
regime:
a) The average European cow has a higher income than half the world's population,
while the lavish subsidies have created a milk lake which Europe dumps in the
developing world with devastating effects on local farmers.
b) “Alternatively, the 38bn euros (£24bn) annual cost of the common agricultural policy
(CAP) could pay for an upper class ticket to New York on Virgin, and the cows would
get a free haircut, manicure and massage plus a choice of 50 different movies thrown
in.
c) "UK taxpayers are unwittingly supporting a system that destroys livelihoods of

millions of poor farmers around the developing world and does little to benefit
European farmers”
Interpretation: even within the Europe (this is before Brexit), there are lots of beneficiaries and
supporters of the CAP but also contestants. The UK has traditionally fostered free trade-minded
NGOs and associations.
Resumo a continuación lo que dice el texto Rigged Rules and Double Standards en relación
con la desigualdad e injusticia que genera el mercado globalizado de la que se habla en el
último punto de esta lecture
- Main argument: international trade is governed by rules in favor of the rich. Then, the
authors argue the need of Institutional change and policy reform, which can radically
alter the prevailing levels of inequality and poverty (without wrecking the global
economy).
- Reforms in:
i. Current patent laws: the present ones exclude the use of drugs by the most
needed people, and don’t promote investigation for needed things like
preventive vaccines (in which pharmaceutical companies are less interested)
ii. Trade policy: on tariffs
iii. WTO bias in favour of rich countries: its rules on intellectual property,
investment, and services protect TNCs and rich countries’ interests, while
imposing huge costs on developing countries. needed democratization of the
org. less influence of TNCs. more redistribution strategies, action against
corruption, more transparency and accountability in developing countries.
iv. IMF and WB policies with respect to pressuring developing countries to

keep their markets open when rich companies close theirs (because this
has damaging consequences for poor communities).
Solution: make it reciprocal and don't complicate it more for poor countries with
loan conditions requiring trade liberalization etc.
v. Policy that addresses from the international community the problem of

low and unstable commodity prices, which consigns millions of people to
poverty.
vi. Reform of world trade to end the deep social injustices globalization causes
=> action to extend opportunity, and thus reduce inequalities in health,
education, and income distribution.
vii. Promote diversification and end over-supply to have reasonable prices

viii. Develop global anti-trust mechanisms, against monopolies and excessive
corporate power.
- Conclusion of the text:

In conclusion, international cooperation must be strengthened, poor countries need to be
integrated into world markets on more favourable terms. Failure to resolve the long-
standing debt problems of low-income countries, and to respond to new problems in
private capital markets, poses new threats: there is a growing danger that many
developing countries will be forced by unsustainable debt to transfer the wealth that is
generated by exports to creditors in rich countries. This is added to the problem of
unilateral tariffs.
Economic integration in the global economy can be a source of shared prosperity and
poverty reduction, or a source of increasing inequality and exclusion, it depends on how
we manage trade. Now it’s badly managed. We need a new world trade order, grounded
in the new approaches to rights and responsibilities, and in a commitment to make
globalization work for the poor.
LECTURE 6 – (SOME) WTO AGREEMENTS.

TRADE POLICY PREFERENCES
Summary:
- Some WTO Agreements, emphasizing some gray areas: ambiguities, etc.
- How to explain trade policy preferences?
1. WTO AGREEMENTS
- The Agreement on Subsidies and Countervailing Measures (SCM)
a) It disciplines the use of subsidies:
- It regulates the actions countries can take to counter the effects of subsidies.
Under the agreement, a country can use the WTO’s dispute-settlement
procedure to seek the withdrawal of the subsidy or the removal of its adverse
effects
- Or the country can launch its own investigation and ultimately charge extra duty
(“countervailing duty”) on subsidized imports that are found to be hurting
domestic producers
b) Then, subsidies are not completely prohibited, but they are thoroughly regulated.
- First, countries must prove that domestic producers are harmed by the unfair
competition due to subsidies in the exporting countries.
- Then, if the subsidy of the other country is not removed, the SCM allows the
country which had complained a space to protect their own industry:
countervailing duty.
c) Probable exam question: “In which cases conditions does the WTO allow the use of
countervailing duty?”
A. In case there is excessive dumping.
B. In case there are sanitary and phytosanitary measures (SPS) which operate
as trade barriers.
C. In case there are technical barriers to trade (TBT).
D. In case there are subsidies. CORRECT
- The Agreement on Trade-Related Investment Measures
a) It regulates the investment that entails traded products.
b) It recognizes that certain investment measures can have trade-restrictive and

distorting effects
As a result, it states that no Member shall apply a measure that is prohibited
by the provisions of GATT Article III (national treatment) or Article XI
(quantitative restrictions).
c) Example: local content requirements. This refers to countries requiring local products
for certain sectors.
d) Transitional arrangements: these allow members to maintain notified TRIMs for a

limited time following the entry into force of the WTO:
- 2 years for developed countries.
- 5 years for developing
- 7 years for least-developed country members
The transition is necessary because the WTO (especially compared to the GATT)
imposes important restrictions on countries’ domestic policies, so that countries
must have time to adapt.
- TRIPS: The Agreement on Trade-related aspects of Intellectual Property Rights
a) Minimum standards for intellectual property regulation:
1) Copyright and related rights

2) Trademarks
3) Geographical indications
4) Industrial designs
5) Patents
6) Layout designs of integrated circuits
7) Protection of undisclosed information
8) Control of anti-competitive practices in contractual licenses
b) Until then, the international regulation on intellectual property was poor. Still after
TRIPS, Members are left free to determine the appropriate method of
implementing the provisions of the Agreement within their own legal system and
practice.
c) OXFAM is critical about TRIPS because it prevents developing countries from

promoting their own pharmaceutical industries: licenses and patents are clearly
dominated by advanced countries’ firms.
- Sanitary and Phytosanitary Measures (SPS)
a) It builds on previous GATT rules to restrict the use of unjustified sanitary and
phytosanitary measures for the purpose of trade protection.
b) The basic aim of the SPS Agreement is to maintain the sovereign right of any
government to provide the level of health protection it deems appropriate, but to
ensure that these sovereign rights are not misused for protectionist purposes and do
not result in unnecessary barriers to international trade.
In other words, governments maintain the right to regulate in the SPS field, but
this agreement warns the WTO members that this regulation cannot be used as a
means for disguised protectionism.
c) Then, this agreement allows countries to set their own standards, but is also monitors
if those standards are justified and they are not there as a trade barrier.
Regulations must be based on science and should be applied only to the extent
necessary to protect human, animal or plant life or health. They should not
arbitrarily or unjustifiably discriminate between countries where identical or
similar conditions prevail.
d) The agreement still allows countries to use different standards and different methods
of inspecting products.
The basic aim: to maintain the sovereign right of any government to provide the
level of health protection it deems appropriate, but to ensure that these sovereign
rights are not misused for protectionist purposes and do not result in unnecessary
barriers to international trade.
- Safeguards (GATT XIX):
a) During the GATT but also during WTO, they have been used to certain extent.
During the pandemic, they have been very predominant: it is likely that we will
have a lot of disputes about them in the near future.
b) It consists of allowing countries to restrict imports of a product temporarily to

protect a specific domestic industry from an increase in imports of any product
which is causing, or which is threatening to cause, serious injury to the industry.
- Industries threatened by imports: importation by similar products are

harming domestic pro
- “infant industry” justification is still used today.
c) However, some giant industries like the steel industries (e.g. US) have been
protected with this justification. Then, for how long can an industry be considered
an “infant”? For this, clauses are very ambiguous.
- Retaliatory space allowed by the WTO
a) As a response to protectionism, the WTO allows higher protectionism on the other

side to fight it: retaliation.
- “My protectionism against yours”.
- “My tariffs against your subsidies”.
- “My new measures against your competitive prices”.
b) Trade wars are shaped by this context: e.g., China vs. US.
c) Counterintuitive: by WTO enabling protectionism, a result can be the deepening
trade wars, which goes against the initial aims of the WTO.
- Scheme of negotiation coalitions in agriculture

a) In order to expand their power and gain market access or eliminate protectionist
measures where countries want to export, many countries form coalitions: they
join forces to defend their common interests.
b) Note that there are a lot of overlapping coalitions
c) Countries power is a very important element even though formally the WTO is
the most democratic negotiating institution that exists. Then, contrary to the
formal equality between states before the WTO, in reality the differences in
economic and political power determine an unequal negotiation field.
2. TRADE POLICY PREFERENCES

- Main questions:
a) Who wants what and why?
b) How are preferences shaped?
c) How do they get translated into actual policy?
d) Whose preferences matter more (i.e., concerning political representation)?
e) How about state actors’ policy objectives?
- The making of trade policies

a) By definition, trade reallocates resources and redistributes income.
- Different interests will appear which will create political competition.
- Then, trade has an inherently political nature.
b) How trade policies are shaped allows us to know:

- Who supports freer trade vs. protectionism?
- How to form pro-liberalization vs. protectionist coalitions?
- Do domestic institutions matter?
c) Trade theories and their political implications try to answer these questions.
- The Factors model

a) The H-O model states that each nation's comparative advantage from trade is
traced to its particular factor endowments: capital/labor intensive goods. A
country which is capital abundant will export capital-intensive goods and
viceversa.
b) The Stolper-Samuelson Theorem is based on the H-O in order to explain why
trade is a divisive political issue.
- Trade affects individuals’ income differently: then, different groups will demand
opposite trade policies.
a) Benefits the owners of abundant factors.
b) Hurts the owners of scarce factors.
- Factor-price equalization theory: An increase in output prices will reflect on an

increase in the return to the factor which is abundantly used for the production.
- Then, the divisions that explain trade policy-preferences of different groups of people are
of cross-class divide nature.
a) Capital abundant country: capital owners support free trade and workers
support protectionism.
b) Labour abundant country: workers support free trade and capitalists
support protectionism
Consequence: class conflict.
- Also, depending on the kind of country:

a) MDCs are capital abundant: Owners of capital will prefer liberal policies;
Workers will prefer protectionist policies
b) LDCs are labour abundant: Owners of capital will prefer protectionist
policies; Workers will prefer liberal policies.
American example: the US is a capital-intensive country. Then, we have

seen that American labour unions have manifested against globalizations
(particularly, NAFTA), while American manufacturers are very supportive
of globalization, the WTO and free trade agreements. This proves how
American trade politics seem to be shaped by competition over national
income distribution between workers and capitalists.
ii. Assumptions:
a) Homogeneity of workers.
b) High mobility of factor: both capital owners and workers can move from
losing to winning industries.
In reality,
a) Workers’ skills are usually specialized in an industry, so mobility is not
that easy.
b) Also, considering capital, changing sector can be costly.
- The specific factor or sector mode (Ricardo-Viner Theorem) considers the inflexibility
of factor mobility. According to this model,
a) Specific factors (SF) are stuck in an industry or immobile between industries in

response to changes in market conditions. ▫ Some factors may be specifically
designed (in the case of capital) or specifically trained (in the case of labor) for
use in a particular production process. In addition, there are other factors of
production (besides labor).
b) For shaping trade policy preferences, it is not the factors but the sectors which
matter: when factors are specific (i.e., not mobile), the incomes of L and K in a
specific sector move together.
c) Real incomes of individuals are tied to the fortunes of particular industries

they make their living from.
d) K & L would cooperate in a particular sector: the owners and the workers of an
industry hold similar preferences, which can be different to the ones of workers
and capitalists of another industry
- Cross-class alliance in specific sectors
- Conflict across sectoral lines:
a) Export-competing sectors: free trade.
b) Import-competing sectors: protectionism.
- Underlying assumptions:
a) Individuals know their own policy preferences: a fast survey in class has
shown that only 50% of people in our class know them.
b) Are societal preferences always translated to policies?
- Whose preferences are reflected in actual policies?
- Is that the majority’s preferences? Maybe not necessarily, even in
democracies.
c) How to translate policy preferences into political demands and then actual
policies?
- Of course, interests matter, but how to organize them?

i. The collective action dilemma explains that small and homogenous groups will be
more likely to succeed in exerting pressure over their interests rather than large
and
heterogenous groups. For instance, it explains why producers than consumers

dominate in the political lobbying.
ii. Organization of societal interests also come into play: unions, federations and
confederations vs. small but powerful lobbies.
iii. Now, do material interests matter?

- Ideology-driven preferences: e.g., moral ideas of justice.
- Community/national level objectives/concerns: concerns over the general
economic development of your local community.
- Environment-related concerns
Nota: hay algunas diapositivas al final de esta lección que no explicó ese día pero lo explica justo
al principio de la próxima, así que termino aquí este tema y lo pongo en la lecture 7
LECTURE 7 – TRADE POLICY PREFERENCES.

SOCIETY AND STATE-BASED EXPLANATIONS.
TRADE POLICY AND DEVELOPMENT
Summary of the lecture:
- Society and state-based explanations
a) Whose preferences matter at the end?
b) Political and social institutions and their role of the materialization of preferences into
policies.
1. SOCIETY-CENTERED APPROACH
- Reminder of factors and sectors model from last week.
- Example of Valladolid: support of the sectors model.

a) Actors:
i. Nieves Martín, CEO of Renault.
ii. Workers and technicians in the Renault factory.
b) Renault is a car major exporter, so that applying the Ricardo Model, they should
support free trade.
c) Cross-class alliance: owners and workers benefit from free trade.
- Based on S-S or R-V we cannot know which preference will actually be transformed into a
promise. Organization of interests in order to translate them to policies: Whose interests will
outperform others?
a) Collective Action Dilemmas explain why small groups can actually be very
powerful. Counterintuitive: if trade affects incomes in predictable ways and people
are rational, why would they not join forces to pursue their common interests? A
response for this is the collective action problem:
i. Lobbying is costly in money, time and effort.
ii. Most individuals will realize that:
a. Their particular contribution to the cause will not make a perceptible
difference to their group’s ability to achieve their preferred trade policy.
b. They will benefit from their groups’ success regardless of whether they
contribute or not
c. Then, their best interest is to free ride: let the rest of the group spend their
time and money.
Since all individuals have an incentive to free ride, no one will contribute, and the
group will not be able to exert pressure on politicians to achieve this goal.
The collective action problem explains three characteristics of trade politics:
i. Why producers rather than consumers dominate trade politics.

a. Consumers are a large a homogenous group: more incentive to free ride.
b. Producers are less numerous: they will be more ready to organize and
lobby the government in pursuit of their desired trade policy.
ii. Why trade politics will exhibit a bias towards protectionism:
a. While a tariff provides benefits for a particular sector (i.e. the

protected industry), its cost is more distributed (individuals and other
firms).
b. Then, the small group from the protected industry will more likely
overcome the collective action problem than a large and heterogenous
group which will have a bigger incentive to freeride.
Consequence: trade politics is dominated by import-competing industries.
iii. Why governments rarely liberalize trade unilaterally but have been willing to do
so through negotiated agreements
a. The reason is that reciprocal agreements make it easier for export-
oriented industries to overcome the collective action problem: large
benefits in the form of access to foreign markets.
b. Example: Reciprocal Trade Agreements Act (RTAA) of 1934, which broke
the protectionist tendency of the previous years.
b) Organization of societal interests: trade unions, confederations, etc.
c) Role of non-material interest: although the former theories are based on purely
economic interest, there might me other ideology-driven preferences.
i. Example: a nationalist or a supporter of human rights could have a trade
preference that is direct conflict with their economic material interest.
ii. Community or national level objectives or concerns.
iii. Campaign for not buying from Walmart.
iv. Another dilemma: concern for inequality vs. personally paying higher taxes.
Same for environmental issues.
2. STATE-CENTERED APPROACHES
- Question for debate: would you only buy domestic house appliances? Example of economic
nationalism: the notion that the overall economy of a country will benefit everyone.
a) Arcelik: Turkish house appliance firm, belonging to a bigger conglomerate.
b) Even though Arcelik was not higher quality or more competitive prices, many
families continued to buy them due to nationalist preferences.
- The effects of electoral systems on the realization of preferences into policies
i. Majoritarian systems: sector-based organization of interests.

i. Small districts: political candidates have an incentive to reach both workers and
capitalists from the preponderant industry of the district. Note: Districts matter
(i.e., gerrymandering).
ii. Also, these systems can be more likely to promote protectionism: the small
groups that benefit from protection will have more chance to exert pressure on
politicians
ii. Proportional systems: it is more likely to have broad coalition on factorial lines,
which benefits factor-based organization.
i. Candidates have an interest to appeal to broad (rather than narrow) interests:
labour class or capitalist class as a whole.
ii. Lowering tariffs: politicians are more able to defy the small sectors that benefit
from protectionism.
Note: a study of Latin American countries found that countries will PR system are more
likely to raise tariffs than majoritarian systems, so research is inconsistent on this point
- The veto player theory: esto estaba en un texto pero no lo contó en clase
a) The veto player is an actor whose agreement is necessary in order to enact policy.
b) Typically, systems have a single veto player, but there can be two or more.
c) The theory predicts that the difficulty of moving policy from the status quo increases
in line with the number of veto players in the political system.
iv. In particular, in trade politics: political systems with many veto players will find it
difficult to alter tariffs in response to societal pressure for change.
v. Example: during recessions, political systems with few veto players will allow
protectionism to arise more successfully.
- The influence of state actors:

a) Do state actors have their own trade policy objective? How do politicians and
bureaucrats’ personal preferences affect the policies
b) Policymakers may intervene in the economy in line with their objectives

independent on societal interests. We have seen this historically but also in the
current pandemic context.
c) Assumptions:
i. Under certain conditions, protectionism may increase social welfare.
Example: infant industries.
ii. Autonomy of the policy makers from societal interests/lobbying.
d) For example: National Champions of France. Supporting specific important

industries which ultimately will increase social industries.
Rivalry Airbus vs. Boeing. Airbus is national champion in France
- The infant industry paradigm:
a) Today, industries still justify state support for initial inefficiency of an industries.
b) In the long-run, the gains should compensate the short-run losses in social
welfare. This is justified by economies of scale and economies of experience.
In Airbus vs. Boing dispute, both the US and the EC complaint to each other
regarding protectionist measures.
c) “Late comers” of industrialization also used infant industry:
1) First: US. Germany and France.
2) Then: Japan and SK.
3) Recently (and still): China.
Ironically, the US is still using it for justifying protection on giant industries like
steel.
- Instruments that state use to conduct industrial policy include:
a) Tax policy: exemptions, breaks and incentives.

b) Subsidies (Boeing in the US, in detriment to Airbus in Europe).
c) Finance and credit incentives.
d) Protectionist barriers.
e) Government procurement practices: governments preferentially buying domestic
products.
f) Channeling resources across industries.
g) Manipulating currency? China has been accused the most lately, but it is not the
only country that has done it/is doing it.
*State-owned banks or firms: e.g., Brazil.
- Oligopolies: a market dominated by a few firms. Example of High-Tech industries.

a) The first-mover’s advantage: in this case, it was Boeing.
i. They have economies of experience (the know-how) and the economies of
scale.
ii. Their domination deters the market entry of other firms.
b) Rational for government intervention: why intervening?

i. there is a strategic rivalry
ii. National-security relevant sector.
iii. Economic consequences on general welfare.
c) Strategic trade theory based on the strategic interactions between firms in

oligopolistic international markets.
i. Use of subsidies, aid, import tariffs and other incentives for firms facing
global competition can have strategic effects to their development in the
international market. They can increase social welfare
ii. Different from infant industry: imperfect competition and the cost of entry is
very high.
SUMMARY:
- The Japanese miracle:

a) Unprecedented economic recovery after WWII. It is one of the most powerful
economic players now (even more in the 90s, then it decayed).
b) Not huge economic resources.
c) In the 1870s: late industrialization (following the German example).
- The industrial policy in Japan

a) State-centric development
i. Major role of a export-oriented trade policy. In particular, they inventived
high- tech industries to be competitive.
ii. Interventionist state: not owning, but steering. State’s lead was crucial for
steering the industrial development, but not in terms of owner enterprises but
rather monitoring the private actors.
b) “Developmental state”:
i. the Japanese made development a national project in order whose aim was to
catch up with the rest.
ii. State´s proactively designing the economic development process. For several
decades, their trade policy was based on elective protectionism.
c) Subsidies to infant industries.
d) Export incentives to particular firms or sectors:
i. Low-cost, tax-breaks (provided that they have returns)
ii. Important sectors: steel, shipbuilding, automobiles, electronics.
Very ambitious project: in country destroyed by the war, they did not subsidise labour
intensive sectors (which could have been saver) but capital-intensive ones.
e) Weak currency: centre of the policy.
i. It became so cheap that it really pressured the West (US and Europe) still in the
contes
ii. Plaza Accord: after insisting for decades, Japan agreed to strengthen their policies.
f) National priorities: “champions”; “picking up the winners”. Example: Toyota.
- Note: these policies mostly contradict WTO rules.

- How did they do this?
a) Key public actors
i. MITTI: Ministry of International Trade and Industry.
ii. MoF: Ministry of Finance.
b) Key private actors: KEIRETSUS muy importante este concepto!!!
- 60-70% of the GNP.
- Big cross-sectoral conglomerates.
- Examples: Mitsubishi, Toyota, Nissan, Toshiba.
- Oligopolies “for the sake of competitiveness”.
c) Centralized and efficient bureaucracy.
d) Close ties and coordination with business.
Aquí le quedaron sin explicar unas diapositivas sobre los Asian Tigers, pero no os lo pongo
porque ya lo explicó en la clase siguiente
LECTURE 8 – ECONOMIC DEVELOPMENT STRATEGIES: EOI

VS. ISI. LINKS TO INTERNATIONAL TRADE
SUMMARY:
Japanese miracle and Keiretsus (see from previous class)
- After WWII, in a very short time Japan not only recovered but also undertook an outstanding
growth and started exporting products specially in the 60s. It is still a major power although
since 1990s,
- KEIRETSUS:
a) Very large groups of companies that can be linked together. They are
multi-sectoral conglomerates owned by the same structure. Often, in the middle there
is a bank
b) Example: Sumitomo is one of the most important ones. It used to be more even more
diversified than it is now, but it still encompasses many sectors.
c) Many other Asian countries mimicked this Japanese strategy.
Development strategies
- Import Substituting Industrialization
a) Production of consumer goods for the domestic market by domestic firms.
b) Aim: substituting whatever you used to import before.
c) Start in easier ones (labor intensive) and then shift the production to capital intensive
goods.
d) State’s role is very important: it designs and controls this strategy.
- Export Oriented/Led Industrialization (EOI/ELI)

a) Similar to the Japanese part (with certain differences which we will consider).
b) It consists of speeding up industrialization designating the focus on international
market.
c) Aim: is to export and reinvest the revenues in industrialization in order to catch up
with the most advanced countries.
d) Discussion on whether the state should lead this on this.
- Market liberalization: neoliberalism. Este tema lo introduce en esta clase pero se centrará
en él en la siguiente.
1. ISI
- The ideological basis is the structuralist view on the failures that existed in the market.
a) The structural problems:
i. Agriculture was the predominant economic activity.
ii. Accordingly, exports were primarily primary products.
Many countries Africa and Asia were export-oriented but rather than for their own
well, for the benefits of their metropolis.
b) Political dynamics
i. Colonialism: very few countries in the developing world were never colonies.
ii. Informal imperialism: even in the countries which were not colonies,
Western powers still managed to impose certain economic dynamics which
shaped the structural outcomes stated above.
c) Societies were made of cleavages

i. Rural classes dominated by big landlords, allied with the military and the
government (colonial or independent, like in Latin America).
ii. Some economies became “monoexporters”: many countries exported almost
exclusively one or very few goods. Example: coffee and cocoa in Brazil.
d) This structure was sustained until 1929: the GD drastically disrupted the institutions
in these countries and particularly their social cleavages. The reason was that the
demand from developed countries plummeted.
Example: Brazilian coffee exporters had to throw their production to the sea.
- Developing countries faced the “structural dilemma”: The starting point was a very low
income which results in very low savings so that there is little room for investment which
makes it impossible. Then, it seems very difficult to increase
Market failures also included a failed coordination between

a) Missing complementary demand across different sectors of the economy: the
production in one sector did not meet the demand from the other.
b) Pecuniary external economies in the same sector or supply chain. Within one
supply chain or sector, there were broken links due to different uncertainties.
- The Singer-Prebish Thesis suggested that the capital accumulation could not be
understood without considered the country’s links with the international economy, and
particularly international trade.
i. International trade was the main culprit behind underdevelopment
(Prebishch, 1950). Raúl Prebisch was an Argentine economist who marked
decades of structuralist thinking and his ideas marked some international
organizations (i.e., UNCTAD).
ii. Within the dependency theory framework, they said that the state dynamics
created and perpetuated a structure where developing countries remained
dependent on developed ones so that they would never catch up.
iii. In particular, they saw a steady deterioration of the terms of trade (relative prices
of exports/imports): very unfavorable for developing countries.
- Then, what is the solution? Is it to exit trade?
Structuralists suggested to reshape the international trade structure in order to improve the terms
of trade for developing countries.
a) In other words, to carry out protectionism (at least for a while).
b) As for the limited capital accumulation levels and market failures, the structuralists
suggested a “big push” which would facilitate coordination.
c) In particular, the state should be the one who would lead industrialization and
structural transformation. Aims:
i. Capital accumulation.
ii. Creation (if needed) and protection of domestic industries. Then, states
would fund training, give subsidies and even invest in sectors where the private
investors were not likely to invest.
- Intellectual justification for ISI: anti-imperialist national ideas played an important role.
“Resistance to Western domination”.
- Characteristics of ISI
a) State-led industrialization.
i. Note: it is not state-owned, that his, this is not communism: factors of production
are owned by capitalists; wherever private investors did not invest, then the state
would invest out of necessity.
ii. Example of India: the state ownership of productive activity in the 1970s went up
to almost 70%.
b) Urgency of industrialization to end structural impediment and dependency on
advanced countries’ markets. Accordingly, their actions consisted of protection of
the domestic market, in order to be able to compete with the products coming from
the advanced countries.
Protectionist barriers were
i. High for final consumption products
ii. Low (or even non-existing) for raw materials and intermediate products.
Quote which shows this urge: “We will reform agriculture too, but it is not possible to achieve
anything just by selling grass! We can barely receive 7-8 buses in exchange for a ship full of
cotton. You may apprise how much effort is needed to raise a ship full of cotton. Therefore,
industry is a definite requirement.” (President Gürsel of Turkey, 1961)
c) The investment regime was based on:

i. Subsidies.
ii. Incentives
iii. Controls: e.g. import controls, so that in some countries some products were
directly prohibited or subject to quotas.
iv. Licenses.
This regime aimed for the growth of both private and public firms. As for foreign firms, the
possibility of investment depended on the country, but in any case they were subject to
restrictions.
In the countries where they were allowed, this was very advantageous: tariff jumping, that is, by
producing in the domestic market they could avoid a tariff.
- Premises of the ISI

a) Exchange rate regime: expensive currency.

i. Note: this is the opposite as the Japanese strategy, which was based on a weak
currency.
ii. The idea was to reduce dependence on importation.
iii. The IMF warned some countries against this.
b) Interest rate regime: low.

i. The aim was to break the low income-investment-savings cycle by incentivizing
investment.
ii. This included negative real interest rates: lower than the inflation rate.
c) “Degrees” of central planning: different state intervention or even ownership.
d) Major resource transfer: from the rural to urban section.

i. Rural life became more difficult: agricultural prices were kept artificially low
because the state bought the products at a cheaper price compared to world prices.
ii. This led to major redistribution of income.
e) Ironically, the ISI became import-dependent It became very hard to export.
- Stages of the ISI

1st stage. Simple consumer goods: textiles, food & beverages and agricultural
industry. 2nd stage. Consumer durables and intermediate goods: automobiles,
machinery, pharmaceuticals, and petrochemicals.
- But then, what should they next?

a) Some countries hoped to open up once they had caught up
b) Others aimed to keep protecting.
At the end, this depended on the ideological stances of the governments combined with the
macroeconomic conditions of the country.
2. THE AFTERMATH OF ISI

- ISI: Success of failure?
a) 1st stage: 1940s-1970s. It was considered the “easy” stage.

i. Success in some countries: Mexico, Turkey, India, Argentina, Brazil.
a. High growth rates (5-7%) and rapid industrialization.
b. Unsatiated domestic demand in consumer products.

Explanation of this success: easy industries and big markets (large countries with
numerous populations).
ii. Relative failure in small markets: countries with either very low purchasing
power or low populations.
b) 2nd stage: 1970s-1990s. This was harder: more ambitious and more difficult.
i. In some countries, slowing down of growth:
i. Uneven protection.
ii. Overvalued currency: limited exportability.
iii. Oil crisis: it struck the whole world, but in particular the developing
countries it was a disaster. E.g.: stagflation.
iv. Lack of (or insufficient) backward linkages.
v. In other countries: crises, indebtedness, and instability.
- Political outcomes of the ISI
a) Import competing producers benefited from the ISI. Also, according to the
Ricardo- Viner model they would have a solidarity with the workers from the same
firms: artificially high wages, power of urban trade unions. In varying importance,
many state- owned enterprises also benefited.
Especially, large firms and multi-sectoral conglomerates (almost Keiretsus) were
the primary winners:
i. Largely protected and subsidized by the state.

ii. Problem: they became monopolies or oligopolies, so that the ISI even
prevented competition from happening even within the domestic markets.
Example: Mahindra from India is a conglomerate that includes numerous diverse
sectors. See list of other giants in middle-income countries.
b) Shift of political power: from export oriented (agricultural interests) to import-

competing (manufacturing interests) industries.
- ISI challenges
a) “Inherent crisis”: in the absence of export revenues, countries faced important
balance-of payment difficulties.
i. Twin deficits: BoP and budget deficits due to:

a. Uncompetitive industries and expensive currency.
b. Low exportability and importability.
ii. Foreign exchange crisis.
Solution: seeking aid from the IMF, which told them to devaluate.
b) External shock. Most important: the oil crisis (1973).
c) The empirical challenge of alternative development strategies: very importantly,

the Asian Tiger, which presented neither of the twin deficits, while they enjoyed great
competitiveness and high export revenues.
- The ISI’s Vicious Circle
- High-to-hyperinflation (1970s-90s)
a) Whenever these countries went through hyperinflation, the military often
intervened. Brazil in 1974: military coup which lasted until the mid-90s.
b) The Oil Crisis:

i. Yom Kippur War: Israel vs. several Arab countries.
ii. OPEC countries imposed an embargo on the importation of oil as a protest for
US support for Israel.
iii. As a result, prices skyrocketed.
iv. This was a major turning point for all economies: oil prices affected all prices,
which resulted in high inflation combined with economic recession.
v. Consequence: the conservative revolution (neoliberalism).
vi. In LDCs, the crise crises brought:
a. A major debt crisis: due to high level of inflation and BoP deficit, these
countries were very dependent on loans.
b. Neoliberal reforms: the IMF and the Bank offered their help under certain
conditions, which gave rise to neoliberal reforms and freeing for markets.
- Summary: os copio directamente esta diapositiva porque me parece que resume bien lo
que venía explicando
- This process culminated in the imposition of the “Washington Consensus”, which can be
defined as “the lowest common denominator of policy advice by the Washington-based
institutions to LA countries” (Williamson, 1989). It consisted of 10 points:
1. Fiscal discipline
2. A redirection of public expenditure priorities
3. Tax reform
4. Interest rate liberalization

5. A competitive exchange rate
6. Trade liberalization
7. Liberalization of inflows of foreign direct investment
8. Privatization
9. Deregulation (to abolish barriers to entry and exit)
10. Secure property rights
LECTURE 9 – ECONOMIC DEVELOPMENT: CRISIS AND

NEOLIBERAL TURNS.
THE CONSERVATIVE REVOLUTION.
1. LDC’S MOBILIZATION
- After the formation of the Bretton Woods Trio, these institutions became the color of the
postwar consensus. Even for the countries that did not belong for these institutions, the rules
of the game affected them; also, they were gradually forced to become member.
- LDC’s mobilization timeline.
a) 1948 ECLAC: hub of dependency ideas and criticism of Bretton Woods Trio institutions.
They criticized the fact that these institutions were not answering the needs of certain
countries.
b) 1955 Bandung Conference:

a. Declaration of different interests of developing countries announcing that the rules of

the game established in the 1940s and the dynamics of the international economics
perpetuated the domination on Western countries and multinational corporations in
developing countries’ markets.
b. Beginning of the NAM: “Non-Aligned-movement”. In the context of the Cold War,
the Non-Aligned countries were independent from both blocs.
c) 1964 UNCTAD:
a. the first director was Prebisch, and his ideas really influenced the criticism of
developed countries and the international economic dynamics.
b. G77: initially 77 developing countries.
d) 1973: the oil crisis aggravated the crisis of the ISI in developing countries.
e) 1974:
a. Developing countries originated the idea of a New International Economic Order
which was accepted by the General Assembly of the UN
b. Quite radical ideas for the time: they questioned the rules of the game and sought
for exceptions for developing countries as well as meeting their specific demands.
c. However, the General Assembly has no enforcement power, so that this agreement
could not actually change the rules of the game, it merely served to make their ideas
heard.
f) 1970: the GSP of the GATT which violated the reciprocity principle began to be
implemented. The goal was to give space for developing countries to industrialize before
actually competing in the international markets.
g) 1980s: many developing countries got into a very severe debt crises and they adopted
social adopted programs under the imposition of the IMF.
h) 1986-1994: the Uruguay Round. Developing countries started being more vocal and
centering the debates on their demands.
i) 2001- Foundation of the WTO and Doha Round.

a. The Doha Round was the developing round.
b. At least of paper, the efforts would be centered on development.
Overall, countries like India, Brazil, Indonesia or Mexico played very mayor role in
changing the rules of the game.
2. THE EOI/ELI. THE ASIAN TIGERS
EOI consisted of speeding up or even initiating industrialization by means of exports:

outward-looking developing strategy.
a) Exports were incentived by:

i. Weak currency.
ii. Subsidies for exporting industry.
b) Two interpretations: market-based vs. state-based. Our interpretation is more state
based: the state actually played a very important role.
Asian Tigers:
a) They were SK, Taiwan, Hong Kong and Singapore. Then, we have late-Asian
tigers/dragons.
b) All Asian Tigers adopted a very comprehensive industrial policy based on EOI
i. Incentivizing domestic producers: exporting industries.

ii. Weak currency. Mimicking of the Japanese pattern.
Still, in Taiwan and especially in SK, the state became even more important.
iii. Selective protectionism: not has heavy as ISI, but still some protection of certain
“giant” industries.
iv. Also, compared to Japan they were much poorer countries in the beginning.
v. They challenged the comparative advantage theory: they started to export
capital intensive or even high-tech goods very soon.
- The case of South Korea.

a) While NK had industrialized before, SK growth was much more successful until it
ultimately became a high-income country.
b) SK initially adopted the ISI in the 1960s. By means of a military coup, General Park
became the President between 1961-79: his idea was “first economic development
and catching up with the West, then peace/democracy”.
c) General Park Administration adopted a very strict industrial policy:

i. Cheap credit: protection of certain industries.
ii. Investment in education.
iii. Focus in high-tech, high-value-added exports.
d) Also, close state-business ties

i. Chaebols: analogous to Japanese Keiretsus. Major concentrated
business giants. Examples: Samsung, LG, Hyundai.
As we will see later, they became criticized in the 90s.
ii. The most concentrated business structure of the Asian Tigers.
iii. State-owned enterprises for a very long time: e.g. State Banks providing
credits to chaebols in order to achieve economies of scale and learning
the know-how to become competitive in international markets.
e) The role of geopolitics and global economy

i. The US aid as an initial access push was essential. Example: it is very
expensive to invest in education as they did.
ii. US allowed SK development as part of their containment policy: avoiding
communism.
iii. The Chinese elites took SK as a very important role model when designing
their own development strategies.
- Other common features of the Asian Tigers include
a) Macroeconomic stability: export revenues, which avoided Balance of Payments crisis

b) Good governance: allocation of resources.
- The Oil crisis in LDCs: the decoupling of the Asian Tigers.
a) In the countries that implemented the ISI, the oil crisis struck during the second case,
which required very high investment.
Results: inflation BoP crisis and need for loans.
Neoliberal reforms: the IMF and the Bank offered their help, but with conditions
(SAPs).
b) The oil crisis also struck advanced countries: stagflation (inflation + recession/slow
growth).
i. Social discontent: “the winter of discontent” in UK.
ii. This phenomenon challenged the Keynesian ideas: high spending, high
taxes and social protection in order to overcome a recession.
A new lemma: “Government is not the solution, but the problem” (Friedman,
von Hayek).
c) The neoliberal turn started emerging in advanced countries based on the basic
ideas of classical economics “let the markets rule”:
i. Deregulation: laissez-faire economics.
ii. Clear shift to right, even within the left.
iii. Changing power balances.
3. THE CONSERVATIVE REVOLUTION
- Thatcherism and Reaganomics spread:
a) Thatcherism: Thatcher was one of the pioneers of the movement in the UK.
b) Donald Reagan in the US.
c) François Mitterrand: he was a socialist, but he converged with the Christian
democrats in Europe to a certain degree (i.e., austerity).
d) Helmut Kohl: conservative in Germany.
- The “Conservative Revolution” and LDCs

a) It impacted even more the developing countries. Actually, it started in Chile:
Pinochet coup d’état (1973), overturning not only socialist Allende but even the
previous governments. The shift signified a whole shift of the economic and social
development strategies.
b) The “Chicago Boys” were Chilean technocratic economists which were trained in
Chicago university or similar institutions which embraced these liberal economic
ideas. They played a major role not only in Pinochet’s governments, but also in other
countries. For instance, General Videla in Argentina and Evren in Turkey are other
important examples of autocratic regimes which counted with these kind of teams.
c) Debt Crisis and International Organizations. The Structural Adjustment Programs

(SAPs) were the conditionalities that the IMF imposed on the developing countries
which were indebted after ISI.
- The effect on SAP on the neoliberal turn:
a) ISI’s inherent problems + oil crisis + high interest rate led to a grave debt crisis and a
need for loans.
The need for stabilization entailed austerity and anti-inflationary programs.
i. Deregulation: laissez-passer.
ii. Liberalization: laissez-faire.
iii. Even capital liberalization: letting foreign capital in (FDI).
b) Conditionalities also entailed privatization of enterprises in order to sell in

exportations.
c) This led to anti-IMF protests all around the world: “the world’s predatory lender”.
- The Washington Consensus:

a) Economist Williamson defined these principles as “the lowest common denominator
of policy advice by the Washington-based institutions to LA countries”.
b) Their basis was the same as the IMF conditionalities.
- Neoliberal reforms brought about major crisis.

a) Some of the most significant ones are the following:
b) The capital account liberalization imposed by the IMF or the Washington Consensus
attracted “hot money”, that is, short-term capital flows. We will discuss the
implications of hot money in the following weeks: primarily, instability.
c) Even Asian Tigers (including the miraculous case of SK) was affected. Copy charts.
- Post-Asian Crisis: G20.
a) G20 is composed by the largest economies of the world.

b) It is not exactly an organization: it is a platform or a forum, an informal group of

countries which started getting together to discuss the impact of the Asian crisis but
then for other reasons in order to cooperate.
c) Crisis and need for caution:
i. First major contestation of the neoliberal shift in LDCs: particularly the impact
of capital flows, which are not always that great.
ii. Need for financial regulation and in general, rethinking the post-Washington
consensus.
- The rise of BRICS: Brazil, Russia, India, China and South Africa. De aquí adelante
no lo explicó en clase (todo lo de BRICS).
a) 2001: coining the word BRICSs by Jim O’Neill (chief economist of Goldman Sachs).
He defined those countries as a critical part of the modern globalized economy and
motors of economic growth.
b) 2008: actual birth of the BRICs.
«BRICs platform was a child of the G20, which, in turn, was a child of the crisis»
«Financial crisis offered opportunities for emerging powers to strengthen cooperation
between themselves, and their position in global affairs as a whole» (President Lula
da Silva, November 2008, Rio de Janeiro).
- Architecture of the global governance contested

a) Need for a systemic reform of multilateral institutions, which were:
i. Undermining the Southern voices and interests.
ii. Unequal representation: cut off from reality.
iii. Perpetuating the Northern dominance.
b) Decision-making and mandate of IOs:

i. Again, problem of representativeness.
ii. Endangering sovereignty.
iii. Clashing with national objectives/priorities.
- BRICS challenging global governance:

a) Activism in all major organizations to reform: to establish alternative institutions
and alliances.
b) IOs and need for inclusive management: Heads of the IMF & the Bank should be
selected through open merit-based procedures irrespectful of regional and/ or
nationality-based considerations
c) BRICS and The New Development Bank
i. A key milestone of the cooperation among emerging economies and

developing countries.
ii. “Our Difference”: “The New Development Bank comes with a very open
mindset. Like the economies we look forward to partner with, we too are on
the development curve. We understand the challenges and needs of borrowing
partners. This gives us the ability to structure our offerings and processes
accordingly. We aim at addressing the needs of developing economies in
today’s context and partner with them».
d) Economic challenges:
i. The Middle-Income Trap.
ii. Slowing down of growth.
iii. Poverty and inequalities.
e) Political and institutional challenges:

i. Democracies at risk.
ii. Authoritarian reversals.
iii. Institutional weaknesses.
LECTURE 10 – THE RISE OF CHINA. THE RISE OF “THE REST”.

PEACEFUL RISE OR A MAJOR THREAT?
1. INTRODUCTION: THE RISE OF EMERGING COUNTRIES
“The salient feature of the third world is that it wanted economic and political clout. It is
getting both”. Picture from the “Silicon Valley” of India: Bangalore.
We will see in this class to which extent the emerging countries changed their fate and
experienced different kinds of economic and political growth. See list of 151 countries:
very diverse.
Recent growth and resilience in crisis: particularly, the financial crisis caused a
decoupling of emerging markets from advanced countries. Specially since the 1990s
(except for the 97 crisis), in the 2000s they faired impressively well, even in the context of
the global financial crisis. This graph proves how the Advanced economies were struck
harder by the crisis than the emerging economies:
Also, some emerging economies have become the motors of global growth:
a. Resilience: “weathering the storms”. They did so specially during the 2008
crisis, but we will see to what extent they will do so during the COVID crisis.
b. Common elements:
i. Sound public finances
ii.Sound macroeconomic frameworks. In some countries, large foreign reserves

(e.g., China).
iii. Sources of capital flows: they started investing in international markets
(e.g., Brazil, India, China). This was unexpected. These countries started to have
(private and public alike) powerful firms: very competitive giants in the
international markets.
iv.Demographic window of opportunity: young population. Risk: this can be a
disaster if there is not a vibrant economy enough to provide jobs, which could
result in social unrest.
c. Out of all these features, these countries (particularly the larger ones) started having
important demands to change global governance institutions, forming the BRICS in
order to challenge them (specially the Bretton Woods institutions).
● See the difference between the world in 2010 and the prediction for 2050:
a. In 2010, we have the US as the first economy, then the EU and after quite a gap, China.
b. In 2050 (according to the estimates we don’t know if China will continue to growth
at this rate), China would become the largest economy will a non-negligible gap with US
and the third would be India, before the Euro Area; also, Mexico and Indonesia surpassing
European economies.
● Of course, some emerging markets matter more than the other, with China being the
biggest and most important
example. What is outstanding
was maintaining the growth
during the 90s; they dropped after
the financial crisis, but they still
grew considerably. Also, by the
last years their GDP had already
become giant.
● Based on GDP in current US dollars, US is the largest economy, with a considerable

difference with China and then Japan; however, in PPP terms China surpasses the
US. Also, China is already de major exporter and a major competitor with the US and
the EU in international markets.
● Chinese’s multinational corporations increased their role in the global production

networks to the point that the Forture Global 500 is now more Chinese than American
for the first time in history.
“Walmart once again tops the list, followed by three Chinese companies—Sinopec,
State Grid and China National Petroleum. The big story is this: for the first time, there
are more Fortune Global 500 companies based in Mainland China and Hong Kong than
in the U.S.–124 vs. 121. Add in Taiwan’s companies, and the Greater China total jumps
to 133” (Fortune, August 10, 2020).
2. CHINA
● The evolution of Chinese transformation. From the Revolution to 1978.
a. 1978-89: Deng Xiaoping as the “Paramount Leader” (de facto, President).
i. His “Open-the-door” Policy opened the Chinese integration to

international markets, which gradually ended the isolation stances of China
which had been maintained for three decades during the pure socialism.
ii.He called it a social market economics with Chinese characteristics/socialism
with Chinese characteristics.
iii. He started four modernizations: agriculture, industry, technology, and
military.
iv.Exported-led growth was the plan for the beginning onwards and FDI-led
growth. However, Deng Xiapoing rule was conservative on capital flows.
b. 1993-2003: Jiang Zemin.

i. Entry in the WTO after a lot of pressure by the EU and the US.
ii. State capitalism solidified as the motor of development in China.
c. 2003-13: Hu Jintao.
d. 2013- Xi Jinping.
i. Very powerful: centralized power within the Communist Party.
● Foreign policy: as China has become a global power and started rumbling the US
hegemony, becoming the candidate for either a hegemonic power rivalry or the next
hegemon in the world, its
They went from “low profile” (in their leaders’ terms) to “striving for achievement”
(specially in the 2000s, exemplified by Xi Jinping’s leadership”.
● The 5 modernization
th
a. It refers to the never adopted democratization or extension of civil and political rights.
b. “June 4 Incidence”: 1980s student’s movements brought together their demands to

th
change the political structure. The result was the Tiananmen Massacre: the protests were
very violently repressed.
● “The Beijing consensus”: named after Joshua Ramo’s piece on the “Beijing
Consensus” on the Financial Times (May 2004). It captures the major trend of
economic policies carried out by China since the 1980s. These were the objective
(rather than the achievements) set by the Chinese governance:
a. Active role of the state: steering, controlling, guiding, owning, regulation and
negotiating. The state owns most means of production (not all: private firms exist). Key
mix of market and state:
i. State control over key industries, heavy state investment and ultimately,
economic power concentrated in the hands of the state, reinforced by the
governmental management of the global crisis.
ii.Gradual reforms have also given space for the market: some scholars have
argued that private sector activity has laid a foundation for China’s success.
b. Market liberalization: locally adopted (by regions).
c. Gradualism and sequencing of reforms. Then, liberalization was not

throughout and did not happen everywhere: it was adopted in different regions before
others, controlling for experimental zones in order to prove the efficiency on these
policies.
d. Eclecticism, flexibility and trial-and-error.
e. Pragmatic stance: un-ideological or de-ideological since the 1970s. The
discourse was that their policies were not based on ideology: it did not matter if the
system was capitalist or socialist, market-led or state-led, etc. A neutral or disinterested
government that tries to do what works in the long term, not driven by an ideologically
driven or socially biased plan.
Strong government and stability provide the Chinese political basis: economic
liberalization with no fundamental democratization or political liberalization.
Stability is a key to sustain this model, due to the collective psychology of the
Chinese people of fearing chaos.
f. “Managed” globalization. Chinese governments could not manage globalization in
the 1980s (maybe it could now), but rather how the Chinese economy is integrated
in this market. China integrated into the global economy “by its own terms”:
i. China has been criticized for prioritizing their national interests over the
powerful interests of the capitalist global economy.
ii. Example of China’s intervention: locating foreign trade and investment to benefit
exporters but restricting competition from damaging its domestic actors.
iii. Globalization with a “nationalist tinge”: managed radical economic change

justified as being in the national interest.
● Now, is it really a model?

- According to the text, it is not a model that can be copied by other countries: it is a
country-specific development path. Also, we must remember that this is not a model
that the Chinese government consciously decided, but rather the a strong state actively
(and asymmetrically) intervening in development.
- Also, an important point was that to reject the Washington consensus.
- “Strong state…”
- According to Breslin, the first capitalist developmental state had been the US
(Hamilton’s mercantilism).
Also, South Korea’s path is similar in certain dimensions: e.g. asymmetric
integration in global economics.
Then, “can socialism with Chinese characteristics” be replicated in other countries?
Quite difficult since this is a sui generis case: very specific to the illiberal system with
strong-state capitalism.
● Main arguments of the text:

- The Chinese model is not as unique and deviant (e.g., deviating from dominant
neoliberalism); from a historical perspective, the statist development path is actually
common. Also, China has some particular factor endowment and socio-historical
contexts that most developing countries do not, so that it will be difficult for them to
emulate the Chinese model.
- However, China does provide an example of an alternative to the neo-liberal project:
I. Importance: state-led alternatives had been undermined by the 1997 Asian crisis.
II. Not so much a particular model that can be followed, but rather an example that
alternative economic policies, partnerships and global orders are possible.
III. A ‘negative’ definition: what China is not can be more important than what is.
This exceptionalism vis a vis the West feeds its position as a Great Power,
particularly in its global duty to promote an alternative to the dominant order.
An alternative development path (vs. neoliberalism and in opposition to the
Washington consensus) and also an alternative global hegemon.
IV. Power of the speech: this discourse about the China model has been argued to
reinforce the status quo in China. Debating whether there is or not a “China model”
may be irrelevant: as long as people think there is and act accordingly, the model exists.
The Chinese elites have deliberatively reinforced the idea of exceptionalism (in
concordance with their position in the global system) and unconsciously, many
external observers have also reinforced their discourse (e.g., American scholars).
● Alluring face of authoritarianism and/or state capitalism. Importance on global politics

and emerging states deciding from this: risk of China showing that successful economic
liberalization can happen without political liberalization.
● China goes beyond its Asian counterparts in tis aspirations: the Asian Tigers models
were very closely investigated by Chinese economists and politicians in order to learn
from them and relatively apply them.
Its size also determines why it challenges even more the hegemony of the US
● The Belt and Road Initiative (BRI) also known as the One Belt, One Road or “the New
Silk Route”.
a. This is China’s grand strategy for the 21 century. Two dimensions:

st
i. Maritime Silk Road Initiative (MRSI)

ii. Silk Road Economic Belt (SREB).
b. This is a very ambitious project of the current president, which has been called
i. “the largest economic development scheme on the face of the Earth”.
ii. “The Marshall Plan of China” for the 21 century.
st
c. Aim: integration of the region into a cohesive economic area through building
infrastructure, increasing cultural exchanges, and broadening trade, transportation,
energy, telecom, and investment.
● China and Regional Comprehensive Economic Partnership (RCEP):

- The world’s largest trading bloc is still in the making. The agreement was signed
last Sunday between ASEAN countries (Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and five
other countries of the region: Australia, China, South Korea, Japan y New Zealand.
- ASEAN: regional bloc which founded by 1968. It mimics the EU to a certain
extent, especially in their free trade agreements, but their institutions have much
less political power.
- Until now, China was very distant to the idea of reginal commitments: it signed
bilateral agreements rather than regional commitments. Then, the RCEP is
probably the biggest regional commitment that China has ever accepted.
● Changing foreign policy: new goals, flexing muscles

- Much more assertive posture: specially with current leadership. We still do not
know how it will act regarding regional initiatives, as they are starting now.
- Champion of liberal global order and multilateral platforms.

i. Chairing 25 IOs.
ii. Dispute this, a question has risen: does China comply with the rules of the
game, change them, and set their own?
- China has taken part of developmental initiatives, but the difference with the IMF
or developed countries is that it is divorced from conditionalities.
- Paying the debt of the advanced countries.
- Major investment and humanitarian aid.
● Implication of China increasingly trading more with Africa and providing aid:
- Mainly, obtaining raw materials (instead of conditionalities).

- Also, using African harbors for the Maritime Road. For example, setting a military
base in Djibouti, established as a “logistic facility”. Strategic location: platform for
geoplotical ambitions overseas
- Good relations with African countries in order to get their votes in international
institution’s (e.g. UN).
● Chinese nationalism: “Making China great again”.

- See laundry song: https://vimeo.com/25211722 (de obligado visionado para
aprobar la asignatura).
- The soprano is the first lady of China.
- “This may be creepy but that it is what it is, and this couple embodies the
nationalist ambition of building Chinese hegemony under the strong leader’s rule”
(Isik Ozell, 2020).
● “One-China Policy”: increasing geopolitical tension.
- The policy supports that Taiwan and Hong Kong are part of China.
- The map shows the countries that support that Taiwan is Chinses: most of Africa.
- Blue countries have a diplomacy of Taiwan.
- Cream countries do not have a consulate or embassy of Taiwan (out of fear of
China). This includes all EU.
● Overlapping claims and boiling conflicts: South China Sea. Tensions over islands
claimed by different countries: China, the Philipines, Vietnam, etc.
● The power rivalry over global governance and its institutions: the Asian
Infrastructure Investment Bank (AIIB).
- China wanted these institutions to reflect the changing power balances at the global
level. This is part of China’s push to reform existing global governance institutions
(especially “the BW trio”).
However, the Bretton Woods institutions and the countries that dominated them
have resisted this. Example: the process of changing quotas in the IMF was decided
as late as 2010 after years of lobbying by emerging countries. They wanted to pay
more in order to increase their voting rights. These reforms were not implemented
until 2016.
- In 2015, China created the AIIB, which will probably be the most important
development bank in the future. Then, alternatives to the BWT have arose which
could overthrow them.
LECTURE 11 – GLOBAL PRODUCTION NETWORKS: FDI AND

MULTINATIONAL CORPORATIONS
Summary:
● Globalization of production: Foreign Direct Investment (FDI), MNCs and dynamics of
foreign investment.
● Bargaining process and realities.
1. FOREIGN DIRECT INVESTMENT

Definition: “when a firm based in one country builds a new plant or purchases an existing
one in a second/foreign country”
It is highly connected to international trade particularly in relation with Intra-Firm trade:

trade between the affiliates of the same firm. This is a major part of overall international
trade (almost 1/3).
Now, presently we are seeing a major decline:

- Is it a sign of receding globalization? Is it due to COVID? We will look at this at
the end of the course.
- Screening FDI has become a common practice in many upper-income countries.
This can even mean prohibiting FDI in certain strategic sectors; also, screening
can mean controlling without prohibiting e.g., setting strict conditions.
- Spain’s response to COVID: restrictive policies against international investment
since April in energy, water, communications, etc.
- COVID19 pandemic raised concerns in supply chains and international market
linkages: “bringing them home”. We will revisit this in the last lecture.
● Agents/Actors of FDI:
- MNCs and TNCs (we will use them interchangeably): “an enterprise that
controls assets of other entities in economies other than its home economy”.
- The foreign market where the MNC invests is called the host.
- Parent companies and affiliates: multiple production facilities in multiple
countries under the control of a single corporates structure.
- MNC occupy a prominent and often controversial role in the global economy.
Controversy:
i. Pros: Bringing jobs in the host country,
flourishing. ii.Cons: exploitation, relocation of jobs,
pollution.
- Home vs. host countries:

i. Until recently, the home countries were mostly the “TRIAD”: North
America, Europe and Japan.
ii.Up until 2000s, host countries were also upper-income countries. After 2000s,
the share of developing countries (e.g., Asia) has increased, but advanced
countries are still the main receivers.
● Hard times for FDI:

a) “Global flows of FDI will be under severe pressure this year as a result of the
COVID-19 pandemic. These vital resources are expected to fall sharply from 2019
levels of $1.5 trillion, dropping well below the trough reached during the global
financial crisis and undoing the already lackluster growth in international investment
over the past decade.
Flows to developing countries will be hit especially hard, as export-oriented and
commodity-linked investments are among the most seriously affected.” (World
Investment Report, 2020, UNCTAD, p.iii)
b) The pandemic is a supply, demand and policy shock for FDI with probable
lasting effects on investment policymaking:
i. Shift towards more restrictive policies in strategic industries.
ii.Increased competition for investment as economies seek to recover from the
crisis.
For instance, particularly for the first wave of the pandemic, the supply was very
restricted.
c) However, the COVID19 is not the only game-changer: the new industrial
revolution had already changed the international trade trends. This includes the policy shit
towards more economic nationalism, which was intensified by COVID, but it existed
before.
● Data on FDI
- We can see the decline out of the pandemic but actually “the game had started to
change already”. Major falls expected in 2020, which will not recover in the
following years.
See fluctuation until 2018: since 2007 it did not recovered until 2015, but
then since 2015 it has been declining.
- Very high concentration: some regions receive more than the others and within
regions, some countries much more than others.
- Predictions of the fall of FDI by continents:
i. FDI flows to Europe : to fall by 30-45 %, significantly more than those to
North America and other developed economies (20-35 % on average).
The region entered the crisis on a relatively more fragile footing.
ii. FDI flows to Africa: to fall by 25-40 %.
● The negative trend will be exacerbated by low commodity prices.
● In 2019, FDI flows to Africa already declined by 10 per cent to
$45 billion
iii. Flows to developing Asia: to fall by 30-45%.
● Vulnerability to supply chain disruptions, the weight of GVC-
intensive FDI in the region and global pressures to diversify
production locations.
● In 2019, FDI flows to the region declined by 5 per cent, to $474
billion, despite gains in South- East Asia, China, and India.
iv. FDI in Latin America and the Caribbean: to fall by 50%.
● Investment prospects are bleak because the pandemic compounds
political turbulence and structural weaknesses in several economies.
● In 2019, FDI in Latin America and the Caribbean grew by 10 per
cent to $164 billion.
d. The largest recipients of FDI:
i. Notice the rise of developing countries in the list.

ii.Also, despite the US being very expensive, countries still choose it over cheaper
market.
iii. As for China, although it is still a middle-income country, it has been receiving FDI
since the “open-door policy” in the 1980s (with restrictions).
iv. Singapore: a very small country which attracts a substantial amount of FDI.
v. Brazil: important progress.
vi. UK downgrade: they used to have the second place; cause: Brexit.
vii. Europe’s share is more than half of the developed economies.
e. In this pie chart we can see that despite the recent trends of developing economies
increasingly receiving greater levels of FDI, developed economies still account for a
great majority of it:
f. Regional differentiation among developing countries: increasing share of Asia.
g. The case of Asia.

i.Top 5 home economies: China, Hong Kong, South Korea, Singapore and
United Arab Emirates.
ii. Huge share of China. Also, Hong Kong has a very major share, more than
India.
iii. However, India has a history of 50 years of restrictions on FDI, very
conservatives on receiving it. The reasons for India past conservativism
include colonial past + nationalism (with socialist elements) at the beginning of
independence. They started to liberalize in the 90s and have been increasingly
receiving FDI since then, especially in high tech.
● A new trend. S-N, S-S FDI: MNC’s in the Global South

- Some developing countries’ companies (India, Brazil, Mexico) have started to
invest overseas: both S-N (investing in advanced countries) or S-S (investing in
another southern country).
Examples: Mahindra (India) and Ülker (Turkey).
- “Multilatinas”: a recent phenomenon which consists of multinational corporations

that are based in Latin American countries which invest overseas.
- Again, the recipients and the suppliers of FDI are still quite concentrated within
these regions: FDI among the same few developing countries.
● Composition of the FDI: historical evolution

- 19 century
th
i. GB was the hegemon and the leader (more than 50% of overall FDI).
US started their investment overseas in the late 19 century: e.g., in
th
Scotland.
ii. Mostly N-S and N-N: in both, the investors where northern countries.
iii. Sectors: natural resources, agriculture, and manufacturing.
- 20 century:
th
i. Again, mostly N-N and also N-S

ii. Sectors: predominantly manufacturing and also natural resources.
- 21 century
st
i. All kinds of combinations: N-N, N-S, S-N, S-S.

ii. Sectors: rise of services, still manufacturing.
● Why do MNC’s go wherever they go to? Important factors in their decision:

a. Locational advantages:
i. Natural resources.
ii.Large domestic market or proximity to such markets: tariff jumping in domestic

markets of protectionist countries (e.g., Brazil). Example: automotive FDI in the
European common market and the US.
iii. Efficiency-oriented investment: lower-cost factors of production (e.g., both
skilled and unskilled labor, land, etc.). These factors are contingent upon the
type of investment: it depends on the sector.
b. Cost advantages:
i. Financial advantages: example of BNW in the US.
ii. Tax advantages: e.g., breaks and reduced rates.
iii. Regulation advantages: e.g., lack of environmental regulations, labor rights,
etc.
c. Problem: are MNC’s provoking a “race-to-the-bottom”? Specially in relation with

elimination of regulations which can be problematic for the domestic countries.
● Rivalry to attract FDI: concessions offered to MNC’s.
a. The FDI provides a high competition between markets, so that countries offer
different concessions as incentives for MNC’s to invest there.
b. Direct financial incentives include:
i. Loans and grants by the host government: SC state promised to buy
from BMW first patch of production.
ii. Low-cost investment.
c. Exemption from import duties, particularly Export Processing Zones (common

practice in Asia).
d. Purchase guarantees: the government promises to buy some of their initial
production.
e. Tax incentives: tax breaks and deductions. Again, this was the case of BMW &
Mercedes plants in the US.
● State-centered factors that can attract MCSs:

a. Economic stability and positive prospects for the future: high growth rate, low
rates of inflation, low debt, etc.
Present crisis: probably, our markets will not crush as Argentina did.
b. Trade openness: limited regulatory burden.
c. Human capital: skilled labor (e.g., important condition in the US for BMW), good
education.
d. Political factors: debate

i. Do the MNC “care” about political regimes & dynamics of a host
country? Maybe, given that they can be affected economically but their political
system.
ii. Does democracy matter? Or is it just about stability?
iii. Good institutions? There is a consensus that protections on property is a
factor that MNCs seek. Then, which regimes protect PR better?
iv. It is about good governance?
● “Market imperfections” in MNC’s investment. Two dimensions:
a. Horizontal integration: the same group and product produced in multiple

production facilities (e.g., in the automobile sector).
b. Importance of intangible (knowledge-based) assets.
● Vertical integration
a. Control over the supply (by the same firm): internalizing transactions for
intermediate products.
b. Specific assets: oil companies like Repsol are a good example.
c. Risk of crowding-out the market: banks investing almost exclusively on giants,
leaving out others. Specially in developing countries, the limited funds that are
available go to MNCs, which threatens national development.
Aquí hay unas diapositivas sobre MNCs controversies que no le dio tiempo a dar pero las
explica en la siguiente clase
LECTURE 12 – MNCS, GLOBALIZATION AND

CONTROVERSIES
Summary:
● FDI and MNC’s:
a. Bargaining dynamics.
b. Special Economic Zones and incentives.
c. Rivalry for attracting (good quality: e.g. technology) FDI.
● Different impact of FDI across countries and groups.
● Controversies about the FDI and MNCs.
● Controversies about globalization and links to political trends. Example: the rise of
populism and Trumpism.

1. FDI AND MNCS

● Special Economic Zones (SEZs)
- They are designed to attract foreign investment based on more flexible rules for
investment, trade, taxes and other kinds of regulations. Then, they offer better
conditions compared to those in the rest of the country.
- They mostly (but not only) include tax exemptions. For instance, facilitating
bureaucratic procedures is an incentive used in Bangalore.
- World Bank definition: “geographically limited area, usually physically secured
(fenced-in); single management or administration; eligibility for benefits based upon
physical location within the zone; separate customs area (duty-free benefits) and
streamlined procedures” (World Bank, 2008).
- Important examples of SEZs
i. Bangalore “the Silicon Valley of India”: with 67,000 IT
companies. ii.Shenzhen “the Silicon Valley of China”.
● Bargaining with the MNCs
- Is bargaining possible at all? Mostly, countries mostly offer additional benefits rather
than bargaining for better conditions. Given the fluidity of capital flows, the most
advanced countries have a lot of power over developing ones, which do not have a lot
of room for requiring.
Remember the case of BMW in South Carolina
- Now, who bargains well? Do sectors matter in bargaining? It depends on the

competitiveness of the sector when comparing the host and the home markets.
i. For high-value-added investment, there will be lower capital mobility.
In this case, technological transfers for example can be more costly, so that
movement is more restricted.
ii.For low-cost manufacturing, there will be higher mobility because they will be
easier to substitute. The idea is that moving is not that costly for the MNCs, so
that given good incentives the MNC will likely move.
- Local ownerships and joint ventures:

i. China used to impose the 51% rule in a lot of sectors (for any foreign firm
investing in China, they have to do a joint venture with at least 51% being
Chinese owned), although it has liberalized this rule recently. Still, for some
investments and sectors, this is still the case.
ii.Japan and South Korea also adopted this strategy for decades. They were both
conservative on foreign investment, but they finally underwent a major
liberalization process.
iii. This strategy often implies partial inclusion in or exclusion from some
sectors (i.e., strategic sectors like natural resources). For instance, the US
prohibited foreign investment on defense, radio-TV and airlines.
iv.Technology transfer-licenses: Japan imposed a rule that IBM had to transfer
their technology to the local companies in order for IBM to be introduced in the
Japanese markets.
This constitutes an important controversy, as there are countries which are
very reserved on transferring their technology.
- Performance (in the export sector) or R&D requirements are also common.
- Countries can also require linkages with the domestic industry (i.e., linkages with
intermediate products in the home country).
- Also, some countries try to limit the repatriation of profits to the foreign market
or the access to local capital markets.
Now, countries may ask for whatever they want when they bargain, but they should
mind their competitiveness if they make their requirements too strict.
● MNCs-Controversies
- Control of critical sectors in host countries: MNCs could form

monopolistic/oligopolistic control over important resources. Example: in Asia, more
than half of the labor force is employed in MNCs.
- Large shares of MNCs in investment, production, and sales. In the pandemic

context, very commonly countries are imposing strict regulations or prohibitions in
critical sectors (e.g., Spain): telecom, media, airlines, ports, defense, energy, etc.
- MNCs influence economic policies and decision-making, which, especially in

small or developing markets, might endanger national sovereignty and national
development strategies
- Outsourcing and sub-contacting has become a widespread phenomenon that many
MNC’s take advantage of, especially in developing countries.
i. Reason: cost efficiency. The host countries are cheaper: they are loosely
(or not at all) regulated, which reduces environmental and human costs.
ii. Example: Inditex subcontracts a lot (Bangladesh, Pakistan, etc.).
iii. Debate over labor standards.
- Nike campaign: Nike lost a lot of revenues due to consumer protesting and
boycotting Nike shoes. Then, they had to adopt new measures on their
regulations.
- Sweatshop Watch is a cross national NGO a coalition of labor, community, civil
rights, immigrant rights, women's, religious & student organizations, and
individuals committed to eliminating sweatshop conditions in the global
garment industry.
According to Sweatshop Watch outsourcing and subcontracting entail:
“extreme exploitation including the absence of a living wage or benefits,
poor working conditions and arbitrary discipline” and the prevalent use
of child labor.
Oatley summarizes arguments of the defenders of globalizations and of developing

governments regarding this issue:
● Defenders of globalization argue that the adoption of enforceable global labor

standards might improve working conditions in the developing world, but it is more
likely that such standards will push people in the developing world back into
poverty.
Global labor standards could bring meaningful improvements in wages or working
conditions, but they will also raise the cost of manufacturing production in
developing societies. They might do so by raising labor costs directly through higher
wages.
They might do so indirectly by requiring more costly production techniques and
safety equipment in factories. Higher costs of production will make the developing
world a less attractive place to invest.
As a result, global standards will yield less investment, less production, and fewer
jobs. The overall impact could be better jobs, but many fewer of them (Krugman
1997). If that is the result, then global labor standards will have pushed people in the
developing world back into poverty. And they say the standards will improve with
time, there’s no need to implement them through the WTO or other mechanisms.
Moreover, to enforce global labor standards governments must be able to restrict
trade with countries violating these rules.
● Developing-country governments argue that the low wages paid to workers in their
countries are not “exploitation.” Low wages simply reflect the abundance of local
low-skill labor in the developing world. Linking trade to core labor standards merely
punishes them for capitalizing on this comparative advantage.
iv. Host governments do not regulate as they should because they want to be
competitive for MNCs, especially in these sectors which are easily substitutable.
Then, the International Labor Organization (ILO) approved the “Declaration of
Fundamental” which entailed some core labor standards, including:
▪ Freedom of association, the right to the collective bargaining,
the abolition of forced labor, prevention of discrimination in
employment, minimum age for employment
▪ Cash standards, maximum working hour, minimum wages,
health, and safety conditions at the workplace.
Problem: they are not realistic and often, they are not actually applied.
Rivalry to attract investment disincentives pro-labor standards regulation.
v. Tricky nature of pro-labor Standards: in case regulations on the labor
standards are applied in the Southern countries, maybe the FDI will flee so that
they could end up losing from this.
On the other hand, workers in advanced countries could win from this, as
they are harmed by outsourcing. Third World Network: “they want to protect
Jobs in the North by reducing the low-cost incentive that attracts global
corporations to the developing countries” (Khor, 1999: 43).
● How should the governments respond to such risks? A critical dilemma:

- Restrict FDI altogether by means of well-designed regulations, so that you
prioritize your national economic development strategy?
- Liberalize FDI so that your economy will benefit from diverse externalities,
despite certain risks and costs? In the pandemic, the rivalry about attracting the
FDI will intensify even further.
● Pros of FDI undertook by the MNCs

- MNCs bring to the host country:
i. Capital
ii. Jobs
iii. Technology (in some cases)
iv. they can bring important know-how.
v. Managerial expertise
- Integration: they facilitate marketing networks.

- They can create backward linkages: supply chains
● Cons and controversies:

- Taking capital back: profit expatriation. This idea was very highly promoted by
the Trump Administration: tacking back the profit of US MNCs performing
overseas.
- They bring :
i. Licensing fees: e.g., technology transfers.
ii. Oligopoly position. Particularly harmful when they control critical sectors.
iii. Their own managers and engineers: limited employment.
- They create:
i. Pollution: taking advantage of poor regulations.
ii.Often, no linkages: sometimes, they bring their own raw materials and
intermediate products.
iii. Crowding-out the markets.
iv. Kicking out the local firms.
v. Conflicts with national objectives: e.g., development.
Os pego a continuación la conclusión del texto de Oatley sobre el debate pro y

antiglobalización
CONCLUSION
The debate on globalization is a debate about whether we should be willing to give up some of the
income that globalization generates in order to achieve other goals
The two sides of the debate share a common objective: reducing global poverty through the
sustainable exploitation of natural resources. Antiglobs are skeptical of the market’s ability to
deliver sustained income gains for the majority of the world’s population at a reasonable
environmental cost, they advocate a larger role for the state in redistributing income, protecting the
poor, and safeguarding the environment. Defenders of globalization conclude that markets will do
what developing-country governments demonstrated they could not.
The important thing is to pay attention to empiric evidence, and not to base the arguments on
incorrect claims, because the opinion and actions of ppl in developing countries (even if
uninformed) ends having an impact on how the global economy works.
● Regulation of the MNCs

- Who regulates international investment? Is there an international organization in
charge of it? The WTO does a partial job (TRIMS Agreement) and the UNCTAD
collects data but does not decide a lot. Also, OECD made an attempt but is also
very limited.
- Realistically, international organizations are in a very precarious stance. There is no

one single international authority supervising and overseeing investment, MNCs
and their diverse parties.
- Yet, there are some organizations where you can go in case of nationalization, not
fulfilling the obligations, etc.
● Historical evolution of MNC Regulation

- Legal principles:
i.National treatment: the private property undertook by MNCs would be treated as national.
ii.Governments reserved their rights for expropriation, but it should be justified by public
purposes or urgent matters. In such case, it must be “adequate, effective and prompt”.
iii. In any case, MNC’s maintains its rights to appeal to their home country (in case of
expropriation).
- The Calvo doctrine (1868) suggested that “no government has the right to
intervene”. Root: US politically intervening in Latin America in order to protect the
American companies in those countries.
- The Risk of Expropriation is a historical and current problem. Example of Mexican
Petroleum in 1938: the government nationalized several foreign companies in the
context of the Great Depression. In the following decades, other developing
countries as Argentina, Venezuela or Egypt began nationalizing, too.
See picture. Mexican popular act: women from different classes brought what they had to
support the government, which had to pay indemnification to the foreign companies that it
had expropriated.
Os la pego pequeñita porque es bonita pero no quiero que gastéis mucha tintaxd
- Argentina vs. Repsol (1939 to 2012). the Repsol investment had initially been
guaranteed by the Argentinian government, but then it was nationalized. There was
an international dispute: Repsol achieved a compensation.
● Intenational Regulation of the MNCs:

- International Trade Organization: it was going to set multilateral rules and an
investment clause. However, it was finally never established
- The UN Resolution on Permanent Sovereignty over Natural Resources (1962): rights
of host countries to exercise full control over their natural resources and foreign
firms operating in these sectors.
- The NIEO attempted to regulate MNCs to facilitate their contribution to
development, imposing a code of conduct to regulate MNC behavior. Again, this was
never implemented.
- These issues were widely discussed in the Uruguay round: the TRIMs incorporated
some regulation out of this Round.
- The OECD established some codes which entailed the Multilateral Agreement on
Investment (MAI) based on:
i.rules for further liberalization of FDI regimes ii.further
liberalization of FDI security for investment iii.national
treatment and MFN
iv.dispute settlement mechanism
This agreement was widely criticized for overprotecting the interests of the large
MNCs at the cost of dismissing the interests host markets, local companies, and
governments of developing countries. This provoked a reaction of transnational
organizations and networks and also the population (for instance, “Public Citizen a
non-profit interest group). Finally, it ceased to exist in 1998.
● Recent nationalizations of Spanish MNCs in Latin America

- “Bolivia and Argentina's nationalization of Spanish companies hasn't gone over well in
Madrid. Spanish officials say Bolivia and Argentina will pay the price in the long run,
as investors become weary of doing business if their assets could ultimately get seized.”
(2012). These examples include:
● 2006: Bolivia, Repsol-YPF
● 2006: Argentina, Agbar
● 2009: Venezuela, Santander
● 2012: Argentina, Repsol-YPF
● 2012: Bolivia, Red Eléctrica (Transportadora de Electricidad (TDE), affiliate of
Red Eléctrica Española)
- The International Centre for Settlement of Investment Disputes (ICSID), dependent of
the World Bank, intervened in the important dispute REPSOL vs. Argentina.
“Repsol would receive $5 billion worth of guaranteed Argentine government bonds
for the 51 percent of the energy company YPF that Argentina expropriated. In
return, it would drop its legal claims over the matter. The legal claims include
lawsuits in the United States and Spain against Chevron, which invested in an
Argentine shale gas joint venture with YPF in an area of Argentina called Vaca
Muerta, or Dead Cow.” (NYT, Feb 24, 2014)
● ICSID takes care of FDI-related dispute

- It is a section within the World Bank
- Repsol vs. Argentina. “Repsol would re”
● Globalization and its discontents

- In general, the process of globalization has caused a lot of controversies and
discontents, which have been more relevant for some social groups than others and
for some countries more than others.
- Oatley’s central argument is not that critical with globalization. His argument is
that inequality at the global level have not been intensified by globalization.
In particular, for Southern countries he has a positive POV for Southern countries:
he suggests that they are still better off after globalization. In addition, he argues
that “ISI did only bring poverty in the Global South”.
● De-industrialization in advanced countries: De nuevo, en la próxima clase

explicaremos mejor esto!
- Globalization, deindustrialization and the “Rust Belt” in the US.
- Losers of the globalization in the advanced countries and the rise of the populism.
Right-wing (but also left-wing) populations are being nurtured by the discontent of
globalization.
LECTURE 13 – GLOBAL INTEGRATION: BACKLASHES AND

POPULISM. COVID19 AND DE-GLOBALIZATION?
Nota: en este tema me parece especialmente importante el Reading de Rodrik, porque lo
menciona a lo largo de toda la magistral y parece que le interesa mucho que sepamos sus
argumentos. Entonces, si bien yo he ido integrando los puntos más importantes, os
recomendaría que al menos una vez os leyerais el resumen del artículo que está en la
Comisión.
1. COVID19 AND ITS IMPACT ON THE GLOBAL ECONOMY
● Even after the public health crisis is solved, the economic and political
repercussions will likely last for a longer time.
- Human cost: heavy and long-term. Increasing job polarization: unemployment has
been growing.
- Intensifying inequality and poverty. Some estimations have begun to show the
COVID crisis will increase poverty and inequality in all kinds of countries.
● Declining volume of international trade: the growth rate of international rate of the
past years has been smaller than the growth rate of GDP. But then, in the context of the
pandemic, international trade has been substantially destroyed, which will determine an
unprecedented drop this year.
● Declining volume of international investment: it will likely drop around a 40% and
we will not recover in 2021 but rather in a few years. One reason (among others): fear
of investors considering economic nationalism.
● Broken and relocated global supply chains: “networks”. For instance, basic
protective equipment was absent (e.g., masks) which especially came from China
before: protectionism, closure of borders and also closure of factories in East Asia
which produced these goods; also, the transportation facilities suffered many delays.
Not only PPE: this process came earlier from previous trade wars, which had already
disrupted global supply chains.
● Economic nationalism:
- It started with PPE nationalism and now vaccine nationalism.
- Screening of foreign investment, new rules and barriers (e.g., strategic sectors).
- Trade and technology wars.
In general, economic nationalism has been clashing with global integration and its
sustainability, which brings the question: “Are we moving towards de-globalization?”
2. GLOBALIZATION AND ITS DISCONTENTS.

LINKED TO RODRIK’S TEXT
● Globalization brings about grievances, which ultimately creates populism. Then,
according to Rodrik (and other authors) populism is not an independent political
movement or ideology, but rather a direct response to globalization.
- According to Rodrik, the economic roots of populism include de-localization and
trade liberalization.
- The main losers of globalization are low-skilled labor.
- Right-wing vs. left-wing populism must be clearly differentiated.
● There is a belief (among some people) that globalization is beneficial for all actors
(all countries and all sectors within countries). However, theory suggests otherwise:
- Stolper-Samuelson Theorem based on the H-O trade model. This theorem

considers the distributional consequences of opening up: simplistically, the
“winners” and “losers” of international trade. Trade generically produces losers, there
is always at least one factor of production that is rendered worse off by the liberalization of
trade. The effect of trade liberalization is to raise the domestic price of exportables relative
to importables. Exportable prices increased.
- Grossman et al. (2017) amplifies this by considering the heterogeneity of the

groups, not only “Capital” and “Labor” in general. They say that heterogeneity within
broad worker categories must be considered. Managers and workers must combine efforts
to be as productive as possible.
According to Rodrik, countries have failed to compensate the losers to a great extent.
For this, he focuses on the robustness of welfare states (US vs. Europe).
● Trade and internationalization of production has created major winners and

losers, even within markets. Also, the costs of this risk are not contained in the
economic sphere only:
- Sever political repercussions, such as populism, have emerged.
- This whole process of populism being reflected in the political sphere has been
combined with a relatively limited capacity of the states to respond, protect, and
compensate the losers.
- The reason is that capital flows has added an unpresented speed, which in a short-
term basis has very much constrained the state’s capacity to tax especially
corporate players, which thanks to capital liberalization are freer to leave. Then,
social welfare states have been weakened to the extent that they are based on the
revenues from these taxes.
- Now, globalization has not affected all countries equally: distributional capacity is
unequal, considering resources, tax capacity, political and social cleavages, and
their demands…
Universal healthcare debate: welfare nativism vs. Example: in the US, even the
most progressive proposals (by Biden) do not attain to provide universal healthcare
for all US citizens. On the contrary, there are countries like Spain where universal
healthcare is very internalized, even though some right-wing parties have been
supporting welfare nativism in anti-immigrant attitudes.
● Rodrik suggests that this reaction was surely predictable.

- Concerning trade, the price of exportable rose relative to the price of importable, as
predicted by the H-O (and rather, S-S).
- The recent phases of global integration accentuated this process: the impact of
some segment of labor would be unavoidable. In this sense, we must consider the
heterogeneous impact on labor: low-skilled workers are worse-off in advanced
countries.
- Rodrik argues that these are obvious byproducts of
globalization: i.Changing nature of work, intensifying
inequality.
ii.Changing nature of state’s ability (and maybe willingness) to compensate for
the losers.
● Global production networks and its link with political participation.

- In areas where there is a China trade shock, there is a major and persistent impact
on wages or unemployment, the major political outcome was that low-skilled

workers voted from Trump, since he had promised to “give back the jobs that the
Chinese, Mexican, Vietnamese, etc. stole”.
- NAFTA: this agreement had mostly modest effects for most US workers, except
for an “important minority” of workers who suffered substantial income losses.
This minority has been found to align with politicians who promise to return these
loses (wages, jobs, etc.).
● Demand and Supply of Populism. Populism works in a demand a supply system.

People distressed at certain matters demand politics to channel these demands
(grievances). Populist parties supply a thin narrative about these concerns.
- On the demand side, the globalization-induced economic anxiety and distributional

struggles provided a solid base for populism. Rodrik argues the problem is not
inequality per se, but rather perceiving economic unfairness:
Automation is more important than globalization when understanding the decline of Us
manufacturing employment, but populist do center their discourse in the latter rather than in
the former. The reasons for that is having an actual “enemy” (Chinese, Mexicans,
Germans…) and the perceived unfairness because of the violation of social domestic
understandings. Economic unfairness and not economic inequality is what people are really
concerned about. So people accept inequality as long as the system is fair. For instance, it is
one thing to lose your job to someone who competes under the same rules as you do. It is a
different thing when you lose your job to someone who takes advantage of lax labor,
environmental, tax, or safety standards in other countries.
Trade deals increasingly reach behind the border to harmonize domestic regulations. This is
a form of economic integration that is called deep integration. It is different from shallow
integration associated with tariff or quota liberalization.
- Then, the specific narratives are provided by the supply, that is, the populist
discourse. According to Edwin Williamson, “Populist leaders lack a coherent
program for social change or economic reform, but try to manipulate the existing
system in order to lavish favors on underprivileged sectors in return for their
support”.
● Varying populism(s)
- European populism as an anti-trade wave. Free trade is an essential pillar of the
European Single Market, so that countries like Hungary and Poland are more
nationalistic in other policies (for example, investment) than trade in particular, just
because they are very integrated in the Single Market.
- Geared towards specific countries: in Europe, populism is not geared towards one
country in particular. Conversely, populism in the US is clearly directed towards
China.
- Again, the difference between the social protections and welfare states of both cases
can explain this diversity. Summary of the explanation in the text:
i. Europe has long had strong social protections and a generous welfare state.
European populism is not antitrade. In fact, one of the arguments for Brexit was to pursue
policies closer to free trade. Empirical analyses have shown that there is a direct link
between exposure to trade and expansion of public transfers. Furthermore, the European
backlash against immigrants and refugees has some of its roots in the concern that the
social benefits of the welfare state will be eroded or displaced.
ii.In contrast, US populism is very much close to trade. The truth is that globalization and
liberalization has not been followed by trade adjustment assistance (TAA) mechanisms like
in Europe. One of the problems is that compensation can be very costly. But the most
serious problem is the political one because of credibility and time consistency. Trade
agreements need the assent of the winners and the losers, so they usually contain TAA.
However, it has been proved to not be very effective, and eliminating the agreement is very
complicated. To sum up, compensation rarely occurs if it is targeted at trade directly. They
tend to work when there are redistributive policies in the nation, like in the case of Europe.
● Populist politics
- Broad concept, which can be generally defined as “the phenomenon whereby a
politician tries to win power by courting mass popularity with sweeping promises of
benefits and concessions to large interest-groups, usually drawn from the lower
classes”.
- Trumpian politics is a clear example: the “real Americans”, especially rural and
low-skilled citizens who had lost from globalization, are the main focus.
- Differentiation “the real people” vs. “the elites”. Rodrik argues that populism
differentiates 3 groups in society: elite (wealth), majority and minority (particular
identity markers). Therefore, 2 cleavages: ethnonational/cultural (right-wing) and
income/social (left-wing).
● Historical populism
- Defined as “the movement of the people”.
- James Weaver was the founder of the “People’s Party”, a coalition of farmers and
miners asking for major reforms against the domination of the financial sector and its
elites; he is considered the first populist candidate for President. This sector had been
struck by debt, caused by low price of wheat and high price of transportation.
- The Populist Party entered into the US politics in 1892. They considered
i.Monopolies as the “evil”.
ii.The laissez-faire as a bankrupt ideology.
iii.Individuals as commodities.
iv.Wealth as too uneven: inequality.
v.Bankers as too powerful.
- They argued the hardship of “real people, while the elites enjoyed prosperity”.
● Challenges of globalization:
- Benefits of globalization exist, but they are unequally distributed.
This is argued by Oatley in this week’s text. This graph shows the evolution of Gini
Coefficient. Since the 1820s, global inequality increased a lot: benefits of
globalization very unequally distributed. However, since the 80s the poorer
countries have been growing faster than the richer ones, so that inequality has
decreased.
Del texto de Oatley: “Conclusions: there is some evidence to suggest that the recent
improvements in global income inequality and global poverty were caused by
globalization.The evidence provides little support for the view that the intensification of
globalization since early 1980 widened income inequality and caused a sustained rise in
global poverty. Global income remains very unequally distributed, but the trend of greater
inequality has stabilized and poverty has begun to fall”.
- Increasing inequalities and “race-to-the-bottom”.

i.Fierce competition driving the prices, wages, regulations downward.
ii.Fierce competition in the labor markets.
iii.Fierce competition for capital inflows.
- Limited national sovereignty:

i. Corporations power over states, for instance on loss tax and regulation power out of
fear of losing competitiveness. For instance, capital flows threaten national policymaking.
ii.Competitive pressure: threatening social security arrangements.
- Intensification of social and political cleavages.

Now, the question is: Has it gone too far and is it reversible?
● New and uneasy trends

- Shift in the labor markets: polarization, precarious jobs, and inequality.
- The gradual decline of the traditional, permanent, nine-to-five job in favor of
non-standard work (replaced by) part-time and temporary work and self-
employment.
- Result: increase in inequalities. Close association between precarious work and
increased inequalities in wages and household income.
- According to the OECD, Spain is the leader of job polarization in the past decades.
“In Spain, incomes of the poorest 10% dropped by 13% per year, compared to
1.5% for the richest 10%” (OECD, 2015:24).
● Hall and Taylor: “Pandemic deepens social and political cleavages”

- However, these cleavages are not new, and they have been deepening for some time.
- The most central cleavage would be education: by means of education, not only
people get a higher market power (particularly remarkable in the US), but also attain
cosmopolitan values, which make them more open to what globalization brings, or at
least they are less inwards-looking.
- “Left behind to die”:
i. Particularly in countries where there is not universal healthcare. Also, they
have found that men in low-skilled jobs are four times more likely to die from
COVID19 than those in professional position.
ii. Populist parties: political expression of those deprived of work by COVID19.
- Deepening of political fault-lines between centrist parties: high disparity between
centrist programs.
- Intensifying all existing tensions:
i. Domestic level: different segments of the labor market, which includes
nativism vs. immigration, full time vs. precariat, etc. Political antagonism at
the level of the 1930s. In cases like the US: racial cleavages have also
intensified.
ii. International level: limitations to multilateralism, trade-wars, and China-US
rivalry.
- A tough labor market for the newcomers: skills, technology and differentiation will be
key factors, as they were before but intensifies in the future.
Aquí al final hay algunas slides que explica en la siguiente clase y otras que no; os
pongo las que no:
● Moving towards de-globalization? Rising economic nationalism:

- Populism(s) provide an apt ground for this:
i.Right-wing populism & Trump administration.
ii.But, not limited to populist governments.
- Increasing competition & superpower rivalry.
- Diminishing will for cooperation.
- Implications for globalization & multilateralism.
● Globalization and tensions:
- Reduced Barriers to Trade and Investment creates asymmetry between
i.Owners of capital, high-skilled workers, professionals
ii.Low-skilled, semi-skilled workers
- Demand for low-skilled L becoming more ELASTIC, hence, easy substitution
i.Employers can move but employees cannot.
ii.“De-industrialization”
LECTURE 14 – 3 CS AND TRANSFORMATION? COVID CRISIS

CONTESTATIONS + TRANSFORMATIONS
Importante: antes de estudiar esta lección hay que escuchar “It’s the End of the World as We
Know it” de REM
Summary
● Global pandemic and its consequences:
a. Immediate implications
b. Medium-to-long-term economic impacts. De-globalization? A renationalized world
economy?
● The rise or rather acceleration of “economic nationalism”.
a. Existing tensions: trade and technology wars.
b. Focused but not limited to US vs. China rivalry.
● Intensification of existing crises and tendencies.
a. Global supply chains: a window of opportunity? For instance, for countries like Spain
b. Technological revolution?
● The pandemic provided a disruption of mobility:

- Specially of goods, but also services and even capital (which had been also disrupted
after the 2008 shock), people (also restricted by immigration laws) and technology or
information.
- The disruption affected the most urgent needs: PPE and sanitary equipment. Even in
the most advanced countries, their scarcity or even absence it has cost thousands of
lives (e.g., in the US).
- An important result was the state’s coming back to the stage: since the 1930s, the state
had never been so enthusiastically called to come in, in order to organize, supply,
regulate, etc.
- According to Solis,
i. In fighting for the new economic order, setting standards on cutting-edge
technologies will be at the forefront → US is concerned with the cybersecurity
risks that Chinese telecom giants like Huawei pose. The pandemic has only
exacerbated concerns that weakened companies in strategic sectors are at risk
of foreign takeover.
ii. Also brought new challenges → export protectionism has risen especially in
shipment of medical and protective supplies. WTO allows for health purposes
-provided the measures are temporary and transparent. However, few countries
have complied with their notification commitments.
● Global supply chains (GSCs) or global value chains (GVCs):

- Honda (carmaker) has suspended production in UK due to supply issues: “Carmaker
Honda said Wednesday it has suspended production at its plant in southern England
after a shortage of parts linked to the coronavirus pandemic and Brexit”. Predictably,
3,500 jobs will be lost.
Brexit had already played a role in the disruption of region and to a certain extent
global supply chains.
- The links and contents of these chains are sometimes unknown even for the firms that
created them, which had been created for cost saving purposes. There are so few
companies that have a clear information over their supply chains, as they are very
complex: they can involve thousands of firms spread all over the worlds.
- The cross-border organization of the activities required to produce goods or services
and bring them to consumers through inputs and various phases of development,
production, and delivery.
- Complex interdependence: they involve FDI by MNCs, outsourcing and
subcontracting to a number of suppliers for specific goods, inputs and services,
situated in (at times) remote geographic locations. (ILO, Decent work in global supply
chains: Report IV, 2016, p.1).
● GSC’s were broken long before the pandemic. Vulnerability of GSC’s became a
concern over the past two decades, and interdependence became to see a risky issue.
- 1999. Earthquake in Taiwan: this severely affected semiconductors production, so

that the computer sector got into a major crisis (sharp increase of prices).
- 2003. SARS pandemic: at this time China had already become a major “factory of
the global economy”, although since then its production has shifted towards more
value-added production.
- 2006. China’s restrictions on rare earth.
- 2008. Global crisis: China became wary on its dependence on international market,
so that it has been retaliating toward its domestic market.
- 2011. Earthquake and tsunami in Japan: heavy dependence on the Japanese
technological markets. After this, many economies started to diversify their
production with respect to these sectors.
- 2018-. Trade wars: after this, the shocks towards GSC’s became almost common
practices, so that many firms started to develop strategies to deal with the
vulnerabilities of their supply chains and make them more resilient towards crisis.
● What to do in order to diminish vulnerability of GVCs?
- Reshoring: Bringing GVCs either “back home” or “close to home” has become a
common practice, due to security concerns. This is likely to create a new impetus
towards regionalization. In general, this consists of relocating the chains close to the
demand/final users.
Although this has become a governmental strategy, this is very costly for
governments or for firms, this is a very difficult to do, as firms often do not know
which are these chains, much less governments do. Then, it is necessary to compile
this information in order to locate their vulnerabilities.
According to Gertz, restructuring GSCs requires these points:
i. Better information. Governments should proactively map the linkages across a

wide range of industries, not waiting until there are shortages.
ii. Use the information to identify vulnerabilities correctly. Governments should

partner with firms and run stress tests and war games playing out different
scenarios to anticipate how they would respond.
iii. Evaluate the policy toolkit for addressing any vulnerabilities. Many policies,
more flexibility
iv. Strengthening international cooperation. If goverments want to assert greater

control over global markets, they need to coordinate. Share information and learn
from other’s experiences. Coordination can help avoid unforeseen shocks and
inefficiencies.
v. Invest in the bureaucratic capacity to restructure the supply chains.
- Diversification of the suppliers. The increasing dependence on the Asian markets

has been evidenced by the pandemic, which has also raised geopolitical concerns (in
particular China).
According to Solis, global supply chains are not the problem, but the solution: she
defends diversification of supply, redundancies in the manufacturing chain and
stockpiling programs as better alternatives. The claim that economic nationalism
would be the solution rests responsibility to governments that should have properly
stockpiled and it would eliminate incentives for producers, making products more
expensive.
Hence, efforts by middle powers to offer an interim arbitration mechanism at the

WTO to handle trade disputes and to commit to maintaining open supply chains in
essential medical goods are the right antidote to rising economic nationalism. (según
quien resumió esto, esto estaba en rojo en plan importante así que os lo dejo en
negrita)
- Stockpiling (Seric and Winkler): making stocks

- Automation (Seric and Winkler): as an outcome of the technological transformation
from the last decades, countries will be able to produce close to home, which will
diminish the vulnerabilities of GSC’s.
Problem: all of these options are very costly.
● Challenges of GVC Reshoring
- Important lack of data on the content and length of GSCs.

i. We need information, coordination, and mapping of GSCs to identify potential

vulnerabilities.
ii. Then, the bureaucratic capacity of governments and their coordination with the
firms will play a very important role.
- Mismatch between the firms vs.

i. Public interests.
ii. Governmental planning.
Their interests might converge or diverge.
- Governments have started to offer incentives to reshore the GVCs in the US, Japan
and South Korea. However, Solis indicated that in Japan only 4% of the firms have
come back.
All these countries have in common that they are very concerned with the rise of
China. However, their firms are very well situated in the Chinese market,
providing goods, services and information that is very beneficial, so that it is
very difficult to convince them to leave China or diversify their production to
other countries.
- Automation and digital technologies

i. Advantage: flexibility of GVCs.
ii. Disadvantage: loss of jobs. Article example in Bangladesh: some textile jobs have
been replaced by robots. Still, robots are very concentrated in some countries (it is
not happening everywhere).
● Can this be a window of opportunity for Spain?
- The EU has come up with a new strategy: “Strategic Autonomy”. Based on the
evidenced risks of international economic dependency, the EU realized that it cannot
become self-sufficient in a lot of fronts, it has adopted a strategy to boost its domestic
productions.
- New regulations and restrictions on foreign investment and trade independence:
incentives on the local producers.
i. One sector that has been subject to this new regulation is energy: Spain has a major
competitive edge in solar energies.
ii. Also, the automobile sector: car producers in Spain.
- Regionalization will likely be the phenomenon of the following decades. In order to do

this, we need:
i. Higher value-added production.
ii. Competitiveness in technology, prices, and skills.

iii. Higher productivity: labor productivity in Spain is not low compared to some
countries (see graph).
● A vicious cycle.
The disruptions of GSC provide concerns on vulnerability, which strengthens

economic nationalism, which intensifies (pre-existing) geopolitical rivalry, which
disrupts even more the supply chains.
● Rising Economic Nationalism

- Trump’s motto: “America First: Buy American, Hire American!”. This is one root of
the Trump’s strategy to attract populism, responding to the demands of the losers of
globalization.
- In the minds of the pandemic, Trump proclaimed a “Made in America Week” (Oct 4-
10). Then, one company based on each state was chosen to exhibit their production in
the White House.
- Now, will economic nationalism be over after Trump? It is not likely.
i. “Biden has said that negotiating new free trade agreements is not at the top of
his priorities list”. He does not seem enthusiastic towards the WTO.
ii. Biden’s Industrial Policy is actually very protectionist.
1. BUY AMERICAN
2. MAKE IT IN AMERICA
3. INNOVATE IN AMERICA
4. INVEST IN ALL OF AMERICA
5. STAND UP FOR AMERICA
6. SUPPLY AMERICA
- Also, it is not only in the US. China’s economic nationalism also existed:
i. The Made in China 2025 project envisages to transform China into a global
high-tech powerhouse.
ii. In fact, after the 2008 crisis China has been reshoring its own supply chains; then,
in the context of the global pandemic China reprioritized this plan even further.
- Rodrik: the people’s contestations as to globalization brought up responses in the US,

but not only there but rather among the losers of globalizations all over the world.
● The impact of the challenges regarding GVCs, nationalism, rivalry and

uncertainty (so far)
- Forces of globalization has been shaken drastically. This graph shows the growth for the
third quarter (Q3) of 2020:
i. The downtrend in international trade has continued in Q3 in most of the world.

The most affected country is the Russian Federation; the US almost 12 % and the
EU almost 10%.
ii. Exception: three East Asian economies.
- International trade is also very intertwined with international investment, even though
after the 2008 crisis it did not follow the same trend.
i. Drastic contraction of FDI: around 40%.

ii. Changing rules of the game: disruption of GSCs, screening, economic
nationalism.
iii. It is important to highlight that since its peak in 2015 it had dropped a lot. Also, a
recovery up to 2019 levels is not expected in the next five years.
iv. An important part of the FDI takes place between MNCs and its affiliates.
- “The impact is massive on the economies, and human lives” (OECD, 11/2020).
i. 2021: around 1/3 of the recovery will happen through Chinese economy.
ii. Uneven recovery (considering N-S, N-N and S-S):
a. Chinese rebound: in the midst of the global pandemic, China will
actually grow around a 10% according to the estimates.
Also, SK, Sweden and to a lesser extent India appear to be the
countries that better weathered the crisis.
b. Most economies will be smaller at the end of 2021 than in 2019.
Lockdowns have carved $7 trillion out of GDP.
iii. Worsened inequality, very linked to polarization in the labor market:
a. 50% of low-income adults in the OECD have trouble paying bills.
b. 33% of them rely on good banks to get their food.
iv. Very hardly hit sectors include autos, apparel, and electronics. These are essential
sectors for Southern countries. Example: Bangladeshi workers.
- The OECD has urged governments to extent financial support programs, strengthening
national health care and social safety nets. It is interesting to see that OECD is not
warning countries against social spending and debt as it had for the last years, but
actually encouraging countries towards social spending.
● How will the economy look after COVID according to the interviewed
economists?
- Their common take is that we are right now at a very critical juncture, which might be
global turning point. Comparison to:
i. Wartime impact: 1910s and 1940s.
ii. Severe crises, especially the 1930s.
- Anticipation of sustained/prolonged economic nationalism which exacerbate the

existing tensions of the global economy and its management.
- This crisis has shown as already vulnerable sides of global integration:
i. Interdependence: GSCs.
ii. Labor market polarization: technology, gig economy (precarious labor) and
skill gap.
iii. Services (demand shift).
- Calling for state action. Again, taking a look at history and Keynes’ New Deal, some
scholars argue a neo-Keynesianism: deficit spending, infrastructure investment and
demand-management.
- Further shift to Asia: Mahbubani argues a China-centric globalization.
● New regionalization: decoupling and rise of new clusters

- This is not only limited to the traditional regional clusters. For instance, ASEAN
signing a free trade area agreement with China.
- Then, RCEP has become the largest regional free trade block, surpassing the EU
considering their share in free trade. However, it remains quite a shallow bloc:
i. not homogenous in policies
ii. “not tying the member states’ hands”: China being very wary of this.
iii. Following the Beijing consensus, this will be a gradual transition: in 20 years, they
will eliminate barriers to trade; we will see in the future to what extent political
integration will happen.
- Still, RECEP is not the only growing bloc. For instance, the CPTPP composed of 11
countries: Canada, Mexico, Peru, Chile, New Zealand, Australia, Brunei, Vietnam,
Japan, Malaysia, and Singapore. These countries are not necessarily in the same región
- “Spaghetti bowls” or “Noodle bowls”: intertwined web of agreements and

clusters. A very complex coexistence between the WTO multilateral agreements
in which on paper all countries are set of the same rules vs. regional complexity.
Globalization, phases, and junctures

●
- 1 phase (times): high mobility of trade, capital, and people.
st
i. 1929 – Great Depression.

ii. State came in: origins of Keynesianism and social protection.
- 2 phase (times): partial mobility of trade and controlled capital.

nd
i. IIWW.
ii. Multilateralism and cooperation.
iii. Keynesianism: consolidation and institutionalization of welfare states.
- 3 phase (times): high mobility of trade and capital.

rd
i. 1973 oil crisis shock brought the end of Keynesianism: the conservative revolution.
ii. Heightened global integration in trade and capital.
iii. 2020 pandemic shock: deglobalization?

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LAURA HERNÁNDEZ GIL

INTERNATIONAL POLITICAL ECONOMY

LECTURE 1 - STUDYING INTERNATIONAL POLITICAL ECONOMY IN

INTRODUCTION: general considerations on the impact of the pandemic in globalization (we

According to Oatley, IPE can be divided into 4 areas:

- International monetary system

- Multinational corporations: particularly, how politics shapes the MNCs.

Our focus in IPE includes:

Example of a backlash of globalization

The US is increasingly more hesitant to back up multilateralism. Main example: WHO.

OLD AND CURRENT CONTESTATIONS AND AT THE CROSSWORD

THEORETICAL PERSPECTIVES IN IPE

1. Mercantilism, which drives from realism.

Mercantilism: an offspring from realism

d) Some economic activities are more “valuable” than others.

- Also, states should “protect in order to industrialize”:

a) In order to embrace domestic industries, Hamilton suggested the use of

It appeared as a reaction to mercantilism.

3. Dependency, which drives from Marxism.

- Conflict: capitalism creates pervasive exploitation

TRANSFORMATION OF THE WORLD ECONOMY. HISTORICIZING

LECTURE 2 - HISTORICAL BACKGROUND AND POSTWAR

- Reasons: 1) uncertain value 2) low volume of transactions based on

- Political and economic factors affect exchange rate shifts, including:

- States sometimes favour undervalued currency in order to discourage imports and

THE THREE PHASES OF EXCHANGE RATE SYSTEMS Nota: esto es un resumen

1. The Gold Standard (1879-1934)

- 1st globalization wave: high mobility of everything.

2. Fixed ERS or Bretton Woods System (1947-1971)

b) Flexible exchange-rates complemented the former, adding liquidity to the system

- Thatcher and Reagan privatized national industries, deregulated financial and

- The Impossible or Unholy Trinity: Mundell-Fleming Dilemma:

- Countries cannot sustain three of the following, only two of them:

19TH CENTURY: THE GOLDEN AGE OF LIBERALISM Nota aquí empieza la

f) Multilateral organizations were absent.

c) The Gold Standard provided stability to the international monetary order.

Prevailing liberal economic theory led to a self-regulating international monetary order:

- Between 1841-45 the Anti-Corn Law League was composed by the

Episode of the collapse of the liberal orders:

THE GREAT DEPRESSION

- Policy responses to the GD

b) Paradox: protectionism did not last in the US and it started to Reciprocal

c) Roosevelt was very critical of Hurbert’s administration. When he was elected

Keynesianism (Keynes’ ideas):

Political outcomes: polarization

b) International money and finance was supposed to be connected to peace and

c) This agreement reached complex matters in an unprecedented way in history.

d) The “Bretton Woods Trio” was created:

e) At the table of negotiations

- British delegation: Keynes. He thought that the rich countries had to

THE POST-WAR ECONOMIC ORDER

​ At an international level, resetting the liberal order meant:

a) Intertwined association between prosperity and peace.

b) Institutionalized cooperation based on the US hegemony but also a new

a) Internalized fear of unfettered markets: no trust on the invisible hand

b) Establishment of social safety nets: social welfare states.

LECTURE 3 - POST-WAR CONSENSUS: INSTITUTIONALIZED

b) Fostering economic growth as a consequence of peace and prosperity.

At an international level, resetting the liberal order meant:

The International Monetary Fund

The ITO and the GATT.