International Political Economy
Introduction: Overview of the course
What is IPE about?
“The biggest challenge facing the field is understanding the simultaneous interaction of
domestic and international factors in determining foreign economic policies and international
economic outcomes.”
Explanations: The international Perspective: we have to take a closer look not only at the domestic
level (comparative economy -> comparing and learning about domestic systems), but also at the
international perspective.
The Quintessential Conundrum :
The state ----and----The Market
“(…) Policies aimed at enhancing internal welfare seldom sit comfortably with those designed
to enhance the efficiency needed to compete in world markets.”
The Domestic Perspective: (Three Analytical Steps):
1. Identifying the Economic and Socio-Economic Interests :
o Inductive Identification
o Deductive Identification:
Stolper-Samuelson
Ricardo-Viner
Economies of Scale
Preference Intensities ?
2. Characterizing the Organization of Economic and Socio-Economic Interests :
o Concentrated vs. Diffuse Interests
3. Investigating the Mediation of these Interests through Domestic Institutions :
o Aggregation
o Delegation
o Compensation
“In one way or another, electoral, legislative, and bureaucratic institutions serve to mediate the
pressures brought to bear by organized interests and the general public, and to transform them in
ways that directly affect policymaking.” (Frieden & Martin, 2001: 24)
The International Perspective: (Three Analytical Steps):
1.Specification of the Strategic Setting:
, Power differentials: The Role of “Structural Power”.“The power to choose and shape the
structures of the global political economy within which other states, their political institutions,
their economic enterprises, and (not least) their professional people have to operate.”
The Number of Players (N, k-groups) – smaller group of countries, who played the leading
role in the multilateral training system. Those small countries presented significant markets.
The concept of the Quad: (80s-90s) – European Union, Japan and Canada; among these
countries, there was a transatlantic agreement. 2004 – such players disappeared because
other players appeared. E.g. China – 11 december 2001 + Brazil and India -> they realized
that cooperation among each other will help them to limit the power of the EU and US in the
Quad. That also allowed them to discipline each other.
The degree of institutionalization: there are institutions that legitimize and delegitimize
things. Going against that is possible. E.g. US is currently doing so by going against the rules
of the institutions. Costs: political costs. The system that you create at one point of time
main not reflect your interest today. E.g. Dispute sellement system in WTO. Today this
system is under fundamental attack. There are members, who have a term of office and it
expired, and they would not be able to continue (in December). There will be a structural
problem in WTO. The EU is trying to create something else in the meantime. The question is:
are we still satisfied with the old system and how it operated today?
2.Identification of the Preferences/Interests of the Different States:
What are these Preferences/Interests ?
The Commonality of these Preferences/Interests ?
Common Interests, Distributive Conflicts, and (Non-)Cooperation.(Non-)Cooperation in a
Context of Highly Conflicting Interests
o Consumers vs. Producers: There is undertainty about the preferences of others
o Uncertainty about casual retorships and effects.
o Imports vs. Exports
o Positive-Sum vs. Zero-Sum: the winner takes everything and the other looses
everything. Positive sum game: turning the conflict in the win-win situation. This is
the most difficult situation, because there will always be a loser. E.g. reformat the
conflicts in zero-sum games by news. Positive sum game: everybody is gonna win a
bit and everybody is going to lose a bit. The more institutionalized the system is, the
less is the risk to loose.
Lesson 1 - Topic 1 – Hegemonic Stability, by Farrell & Newman (2019) (Lesson
2 in the slides of professor)
Weaponized Interdependence: How Global Economic Networks Shape State Coercion
1. Introduction:
The reimposition of sanctions on Iran is just one recent example of how the United States is
using global economic networks to achieve its strategic aims.
Globalization has created a world in which everything became war
, Global economic networks have security consequences, because they increase
interdependence between states that were previously relatively autonomous.
In this article, we develop a different understanding of state power, which highlights the
structural aspects of interdependence. Specifically, we show how the topography of the
economic networks of interdependence intersects with domestic institutions and norms to
shape coercive authority.
Asymmetric network structures create the potential for “weaponized interdependence,” in
which some states are able to leverage (to influence) interdependent relations to coerce
others.
States with political authority over the central nodes in the international networked
structures through which money, goods, and information travel are uniquely positioned to
impose costs on others. If they have appropriate domestic institutions, they can weaponize
networks to gather information or choke off economic and information flows, discover and
exploit vulnerabilities, compel policy change, and deter unwanted actions.
In the former, advantaged states use their network position to extract informational
advantages vis-à-vis adversaries, whereas in the latter, they can cut adversaries off from
network flows
For those researchers interested in conflict studies and power, we show the critical role that
economic relations play in coercion. Rather than rehashing more conventional debates on
trade and conflict, we underscore how relatively new forms of economic interaction—
financial and information flows—shape strategic opportunities, stressing in particular how
the topography of global networks structures coercion.
We begin by explaining:
a. how global networks play a structural role in the world economy.
b. how these networks, together with domestic institutions and norms, shape the
strategic options available to states
c. how networks in financial communication and internet communication developed
and were weaponized by the United States.
2. Statecraft and Structure: The Role of Global Networks
Liberal scholars stressed the power resources of actors rather than structural factors, in
particular the dispersion of power across such networks, and often emphasized how
interdependence generated reciprocal rather than one-sided vulnerabilities.
Robert Keohane and Joseph Nye describe globalization as involving the development of
“networks of interdependence.”
We argue that:
a. networks are structures in the sociological sense of the term, which is to say that
they shape what actors can or cannot do.
b. network structures can have important consequences for the distribution of
power (they result in a specific, tangible, and enduring configuration of power
imbalance. Key global economic networks—like many other complex phenomena—
tend to generate ever more asymmetric topologies in which exchange becomes
centralized, flowing through a few specific intermediaries)
What is important is that social networks tend to be highly unequal.
Such inequalities may arise in a number of plausible ways . Simple models of preferential
attachment suggest that as networks grow, new nodes are slightly more likely to attach to
nodes that already have many ties than to nodes that have fewer such ties. As a result,
sharply unequal distributions are likely to emerge over time. Network effects, in which the
value of a service to its users increases as a function of the number of users already using it,
may lead actors to converge on networks that already have many participants, while
, efficiency concerns lead the network providers to create hub-and-spoke systems of
communication. Finally, innovation research suggests that there are important learning-by-
doing effects, in which central nodes in networks have access to more information and
relationships than do other members of the network , causing others to link to them
preferentially to maintain access to learning processes.
These mechanisms and others may generate strong rich-get-richer effects over the short to
medium term, in which certain nodes in the network become more central in the network
than others. They are highly resistant to the efforts of individual economic actors to change
them.
As the pattern starts to become established, new nodes become overwhelmingly likely to
reinforce rather than to undermine the existing unequal pattern of distribution.
When global networks largely came into being through entirely decentralized processes, they
have come to display high skewness in the distribution of degree.
In a networked world, businesses frequently operate in a context where there are increasing
returns to scale, network effects, or some combination thereof. These effects push markets
toward winner-take-all equilibrium in which only one or a few businesses have the lion’s
share of relationships with end users and, hence, profits and power.
The most central nodes are not randomly distributed across the world, but are typically
territorially concentrated in the advanced industrial economies, and the United States in
particular. This distribution reflects a combination of the rich-get-richer effects common in
network analysis and the particular timing of the most recent wave of globalization, which
coincided with United States and Western domination of relevant innovation cycles.
3. New Forms of Network Power: Panopticons and Chokepoints
States with large economic markets can leverage market access for strategic ends . National
economic capabilities, then, produce power resources.
States that rely on a particular good from another state and lack a substitute supplier may
be sensitive to shocks or manipulation.
Market size and bilateral economic interactions are important, but they are far from
exhaustive of the structural transformations wreaked by globalization.
Global economic allow some states to weaponize interdependence on the level of the
network itself.
The first weaponizes the ability to glean critical knowledge from information flows, which we
label the “panopticon effect.”: one or a few central actors could readily observe the activities
of others. States that have physical access to or jurisdiction over hub nodes can use this
influence to obtain information passing through the hubs.
Under the panopticon effect, states’ direct surveillance abilities may be radically outstripped
by their capacity to tap into the information-gathering and information-generating activities
of networks of private actors.
Such information offers privileged states a key window into the activity of adversaries, partly
compensating for the weak information environment that is otherwise characteristic of
global politics. States with access to the panopticon effect have an informational advantage
in understanding adversaries’ intentions and tactics.
The second channel works through what we label the “chokepoint effect,” and involves
privileged states’ capacity to limit or penalize use of hubs by third parties (e.g., other states
or private actors). Because hubs offer extraordinary efficiency benefits, and because it is
extremely difficult to circumvent them, states that can control hubs have considerable
coercive power, and states or other actors that are denied access to hubs can suffer
substantial consequences.
