GWANGSEOK LEE PLSC 014 Professor Robert Packer International Political Economy

We live in a society where we can find massive amounts of Chinese or Mexican products at any markets in the United States; and those products are relatively cheaper than the prices of other products in the same category. Purchasing a product at lower price is one of our privileges that we, the customers, get by living in a global society where the international trade is promoted. On December 8, 1993, North America Free Trade Agreement (NAFTA) was signed into law and people hoped that this free trade agreement would create jobs and enhance the competitiveness of domestic businesses. After the United States, Mexico, and Canada were tied to this multilateral trade agreement, some economists regarded it as a net loss for American labor and the environment, but some business corporations regard it as a godsend opportunity (Burfisher: 2008). As we have noticed, there different views exist on a situation in International Economy. Accordingly, many scholars defined some major views in International Political Economy in order to understand the different interests in International Political Economy. In this passage, we will overview the general concepts of the major views, the policies those interest groups prefer, and the important factor that causes the changes in government policies.

Through the international trade, the states will not only exchange products, and capitals but they also create the economic interdependence among other states that highlight the necessity of political intervention in International Political Economy

(Gasiorowski: 1986). As I have mentioned earlier, there are three major perspectives in International Political Economy: Commercial Liberalism, neo-Mercantilism, and Structuralism; and the major factor, which defines the boundary among theses perspectives, is the view of the relationship between politics and economics. Liberals believes that individual and firms get mutual benefits through the market exchange; Liberals also emphasize growth and equity over equality in meaning of minimizing the intervention of governments in markets. Having firm belief in laissez-faire, Liberals favor minimal government intervention in the economy (Packer: 2011a). Moreover Liberals argue that the economic interdependence facilitates peaceful relationship between states, encourages the investment flow, and increases the opportunity of going to war (Ripsman: 1996). In a moderate way, Structuralists shares the similar view with Liberalists strictly only in government intervention; Structuralists argue that government should not intervene in the issues in general economics since the political power reflects the voice of ownerships. Structuralists perceive the society as a stage of struggling between the capitalist class and the working class; and they argue that the dominance of the capitalist class over the working class was created because of the high productivity in industries that led the capitalists to lower the wages of workers in order to meet the marginal profit (Krugman: 2007). Now, living in a global society, Structuralists are concerned about the status of labor power in a global economy; they claim that the labor power has weakened vis--vis transnational capital and corporations. Structuralists believe that the developing countries, viewed as the working class, will work for the developed countries, viewed as the capitalists, instead of experience the advances of new technologies and life quality. Therefore, Structuralists have deep distrusts in governments for reflecting the voice of

ownerships, such as, lowering the wages of workers. However, neo-Mercantilists believe the importance of governmental intervention. Neo-Mercantilists argue that politics may determine economics in order to promote the advance of domestic production and employment, ultimately the competitiveness of the domestic businesses in the global market. Neo-Mercantilists notes the importance of government in building of infrastructure, providing more efficient transportation facility, and assisting exporting firms; moreover, they allow governments to subsidize their businesses if those decisions are necessary to enhance the competitiveness (Packer: 2011b). Though these schools have different views in the relationship between politics and economy, they unanimously agree that an international trading is an essential part of the global society and they also admit that some producers will gain relatively more than others.

When someone gains more than others, the others will likely to find a way to survive and, in international economy, we named this action: Protectionism. The purpose of international trading is to lower the price of production so that the products can expect higher demand, if the quality is equivalent to other products, in markets based on the law of supply and demand (Jain: 2007). Thus, the producers, who have comparative advantages, will export their products eagerly to other countries; and the domestic producers, who dont have comparative advantages, will likely to lose their competitiveness in markets; and there are two explanations for the behaviors in protectionism and what interest groups are interested in protectionism. Based on Stolper-Samuleson theorem, Factor model argues that states produce and export goods that use intensively its relatively abundant factor and import

goods that use intensively its relatively scare factor. It claims that if country A is abundant in factor X and scarce in factor Y when country B is abundant in factor Y and scarce in factor X, they are likely to open a trade market. However, the producers of factor Y in country A will be harmed by the trade so they are likely to support protectionism in order to maintain their market shares. Therefore, Factor model argues that, in international trade politics, there will be a conflict between interest groups, which are owners of abundant factors and owners of scarce factors. Based on Ricardo-Viner model, Sector model argues that there will be a conflict between export-oriented industrial sectors and import-competing

industrial sectors. For example, in the United States, textile capital and labor could be protectionist, while computer capital and labor could be for trade; in general, the producers ask government for put higher tariffs on other countries goods so that the domestic products can have relative price advantages in markets (Packer: 201c); the solution of the tariff strategy for export-oriented producer is Free Trade Agreement.

While those interests groups struggle, I havent mentioned the most important factor that enabled all the possibilities in International trade: the capital mobility. The labor mobility is strictly limited since it does require physical migrations of labor forces; however since the capital mobility

required monetary transactions, such as, Foreign Direct Investment, Bilateral/Multilateral funds, which require less physical mobility than the labor mobility does (Spiegel). Based on this advantage of capital, states try to attract transnational corporations, and multinational corporations to invest capitals in their states. In order to attract investors, governments try to issue their bonds to foreign investors. Issuing bonds to foreign investors is a good idea to collecting capitals from other countries; however, this strategy may jeopardize a fiscal policy of a state and cause a heavy fluctuation in currency value when it depends excessively on foreign investments (Packer: 2011d). For example, in order to secure the bondholders, governments try to minimize the fluctuation of the interest rate; however, is a crisis, governments fail to pay their debts back to banks and the banks raise the interest rates which reflect the governments inabilities to pay their debts back; and, eventually, the bondholders are likely to feel insecure about their bonds and may try to sell those bonds back (Packer: 2011e). Though there are some risks to attract foreign investors, states still try to attract investors. Many governments try to free their taxes, lower the wages of workers, and build infrastructure for convenience; and some scholars look at this situation in different perspective. Liberals believe that the capital mobility will enhance the general life quality in developing countries through

creating jobs, benefiting side effects from infrastructures, and providing higher education. On the other hand, Structuralists believe that the capital mobility will benefit only developed countries while harm all the developing countries. Structuralists believe that the general life in developing countries will degrade because of the government policy that tries to lower the wages of workers, and the foreigners investing method that is borrowing money from domestic bank instead of bringing capitals from their countries. However, generally, the capital mobility is believed to enhance the general life quality of both developed and developing countries (Epstein). As we have seen in this passage, the capital mobility plays an important role in the behaviors of governments in making their policies. Certainly, there are numerous variables that are playing major roles in International Political Economy beside the abundance and scares factors, the orientations of different trading behaviors, and the advancement capital mobility. However, we have seen that those variables, which we discussed, have significant impacts on the government policies that make differences in the future. Living in the global society as consumers, we experience the privileges of purchasing goods with good quality at very good prices. However, being as members of the global society, it is

important to keep in minds to find a harmonic boundary where the equity and equality are reasonably balanced.

Word Count: 1476

Citations

Epstein, Gerald. Winners and Losers in the Global Economics Game. Date & Publisher Unknown. Class reading assignment.

Krugman, Paul. 2007. In Praise of Cheap Labor. 2007. The Dismal Science.

Spiegel, Steven L. World Politics: Ch.8 North-South Economic Relations:

The Challenge of Development. Harcourt Brace College Publishers

Robert Packer. 2011. Class Notes. 2011 The Pennsylvania State University

Malkin, Elisabeth. 2009. Did NAFTA Actually Help Mexico? December 10th,

2009. The New York Times

Burfisher, Mary E. 2008. The Journal of Economic Perspectives: The

Impact of NAFTA on the United States. Pg.127. 2008. American Economic

Rpsman, Norrin M.1996. Commercial Liberalism under fire: Evidence from

1914 and 1936. 1996. Routledge: Taylor & Francis Group

Gasiorowski, Mark J. 1986. Economic Interdependence and International

Conflict: Some Cross National Ecidence: International Studies Quarterly. Vol.30. pg. 23-28. 1986. Blackwell Publishing

Jain, TR. 2007. Microeconomics and Basic Mathematics. 2006. New Delhi: V.K. Publications