Contemporary Perspectives on IPE

Contemporary Perspectives on IPE Class 3 – Tuesday, 20 September 2011J A Morrison Barry Eichengreen Jerry Cohen Larry Summers 1

Contemporary Perspectives on IPE • Defining Our Terms • IPE as a Social Science • IR “Schools”/“Theories” • Some Differentiating Questions • Reference to Empirics • Conclusion: How should we study IPE? 2

There are lots of “--isms” in the political economy literature… Socialism Autocracy Democracy Authoritarianism Capitalism Aristocracy Communism Liberalism 4

Since these terms are frequently used in different ways, it will be valuable for us to be sure we use the terms in the same ways in this class. 5

I like to think about them as describing points along various continua, as representing values for particular variables. 6

I understand these terms in the context of the following big questions… 7

Regime Type: Who holds the reigns of power? Democracy Aristocracy Autocracy Many Few One

Negative Liberty: What restrictions are placed on government authority? Liberal Authoritarian Many None

Political-Economic System: What is the level of government intervention in the economy? Capitalist/Free-Market Socialist/Managed Low High

“Communism,” for me, denotes the political-economic system that Marx predicted would follow inevitably from capitalism. 11

Remember, these questions relate to variables. Over time, we have observed various combinations of these different values. 12

Observed Combinations Of course, we might disagree about specific characterizations; but the point remains: different regime types, levels of liberality, and PE systems have been combined. 13

Theory versus Policy • Foreign Economic Policy (“FEP”) • The policies designed to influence the relationship between the domestic economy and foreign markets and/or the global economy • These are the policies that exist, not necessarily the theories • Broad category: everything from tariffs to fertility policy • Political Economic System (e.g. Mercantilist System) • The proposed bundle of related theories concerning a state’s FEP • Note: the proposed system may not always be fully adopted or implemented in practice; the PE systems are distinct from actual policy 14

There’s a real question about the extent to which we do and should study IPE as a science. 16

We’ll consider that question.But, first, let’s discuss what it means to study something “scientifically.” 17

Scientific study has several defining features. 18

Scientific study is positive.  Concerned with what is (positive), not what ought to be (normative). 19

And scientific study relies on the empirical testing of models to explain the relationship between variables. 20

Let’s unpack that. 21

Variables • Variables: factors of interest that may vary in value • May be continuous, discrete, or a “dummy” • Examples • Volume of trade (continuous) • Type of Exchange Rate Regime (discrete) • Status of membership in Int’l Organization (dummy) 22

Theories and Models • Specify relationship between variables • Value of independent (or “explanatory”) variable explains dependent variable • E.g. Type of exchange rate regime (IV) explains the volume of trade (DV) • May be correct or incorrect (i.e. may or may not align with reality) • Endogenous: determined within the model • Exogenous: determined outside of the model 23

Facts • Descriptions of reality • For our purposes, statements about the value of variables • May be correct or incorrect • Examples: • Hong Kong has a fixed exchange rate (correct) • The volume of world trade has increased since 1945 (correct) • The United States has a fixed exchange rate regime (incorrect) 24

Empirical Tests • Theories/Models lead to testable hypotheses • E.g. Fixed exchange rate regimes lead to greater volumes of trade. • Hypotheses are predictions about the value of variables • We test hypotheses by comparing predictions to observed reality • Do we observe that countries with fixed exchange rate regimes have greater volumes of trade than countries with flexible exchange rate regimes? 25

Correlation ≠ Causation • Correlation: the values of two variables vary together • E.g. When many students arrive to class carrying umbrellas, overall attendance is poor • Spurious correlation: correlation without causality • E.g. students do not avoid class because they fear umbrellas! • Or causality may be reversed • E.g. Perhaps high trade volumes lead to fixed exchange rate regimes (rather than vice versa). 26

Scientific study relies on an epistemology.  An understanding of what can be known and how to acquire knowledge. 27

You hear a lot about the “schools” of IR thought.Realism, Constructivism, Idealism, Liberalism, Institutionalism, &c. 29

These terms, used tout court, mean almost nothing to me. 30

There is simply too much variation within these “schools” for these monikers to convey much useful information. 31

Many of the “founders” of these schools (Wendt, Mearsheimer) don’t even agree on who belongs where, let alone what defines each school! 32

So, think in terms of either specific theorists and/or specific theories—meaning, responses to precise questions. 33

And think in terms of multiple dimensions—not just a simple, one-dimensional continuum. (Don’t think the way my mother does: “liberals” versus “conservatives.”) 34

Here are some of the essential questions we might ask.Each question constitutes a dimension along which we might organize different theorists & theories. 36

IV. DIFFERENTIATING QUESTIONS • Where’s all the action? • Does process matter? • What makes us tick? • What is the nature of our world? 37

The Levels (Images) of IP • At what level should we look for the key variables? • The Levels (Images) • Individual (1st): Hitler liked war • Unit/State (2nd): Germany was Autocratic; Autocracies are bellicose • System (3rd): There wasn’t a hegemon (single dominant power) to check Germany’s rise 38

The Primary Actors in IP • Who are the primary actors in IP? What ought to be our “units of analysis”? • Potential Units of Analysis • States • Individuals • International Institutions & Organizations • Interest Groups and NGOs • Socio-Economic Classes • Transnational Social Movements (e.g. Feminism, Environmentalism, &c) 39

The Types of Variables • What types of variables matter? • Material Factors • Power • Wealth • Geography • Material interests (income, &c) • Ideational Factors • Values • Perceptions & Understandings • Assumptions, Expectations, & Identities 40

Static versus Dynamic Models • Static Models • “Snapshot” of current situation • History, momentum, &c., do not matter • Many variables treated as exogenous • Dynamic Models • Process matters • Virtually all variables could be endogenous • E.g. The economic situation Obama faces must be understood in the context of previous administrations 42

Why use static models at all? • parsimony—dynamic models are quite unwieldy. • E.g. Did Andrew Jackson’s administration help to generate the current financial crisis? • The question: which variables can we assume to be exogenously determined? • Disagreement arises over answers 43

Logics of Human Behavior • Consequentialist (Functionalist) • Actions chosen based on expected consequences • Appropriateness (Normative) • Actions chosen based on normative standards of right & wrong  Which mode did Locke, Smith, & Marx use? 45

Narrowness of Our Interests • Egoism • Almost total emphasis on one’s own welfare • Altruism • Considerable weight given to the welfare of others  Which view did Locke, Smith, & Marx hold? 46

Source of Our Interests • Rationalism • Preferences are exogenously determined • Constructivism • Preferences are endogenous to interaction  Are we social or unitary/atomistic actors? 47

Do Markets Work? • Market Failure • Without active management, markets often produce suboptimal outcomes • Invisible Hand • Markets produce best outcomes when intervention is minimized (laissez-faire) 49

Compatibility of Interests • Mutual Benefit • Pursuit of private interest serves public good • “Private vices are public benefits” (Mandeville) • E.g. Competition between producers  better products at lower prices • Zero-Sum • Benefits can only come at others’ expense • E.g. Allocation of rival goods; pursuit of status  What areas of the market face which circumstance? 50

Contemporary Perspectives on IPE