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Global Political Economy Global Political Economy U NDERSTANDING THE I NTERNATIONAL E O CONOMIC RDER Robert Gilpin WITH THE ASSISTANCE Jean M. Gilpin OF PRINCETON UNIVERSITY PRESS PRINCETON AND OXFORD Copyright2001byPrincetonUniversityPress PublishedbyPrincetonUniversityPress,41WilliamStreet, Princeton,NewJersey08540 IntheUnitedKingdom:PrincetonUniversityPress,3MarketPlace,Woodstock, OxfordshireOX201SY AllRightsReserved LibraryofCongressCataloging-in-PublicationData Gilpin,Robert. Globalpoliticaleconomy:understandingtheinternationaleconomicorder/ RobertGilpinwiththeassistanceofJeanM.Gilpin. p.cm. Includesbibliographicalreferencesandindex. ISBN0-691-08676-1(alk.paper)—ISBN0-691-08677-X(pbk.) 1.Internationaleconomicrelations. 2.Freetrade. 3.Internationalfinance. 4.Technologicalinnovations—Economicaspects. 5.Economicdevelopment. I.Gilpin,JeanM. II.Title. HF1359.G55162001 337—dc21 00-051684 ThisbookhasbeencomposedinSabon. ThepaperusedinthispublicationmeetstheminimumrequirementsofANSI/NISO Z39.48-1992(R1997)(PermanenceofPaper) www.pup.princeton.edu PrintedintheUnitedStatesofAmericabyPrincetonUniversityPress, Princeton&Oxford 10 9 8 7 6 5 4 3 2 1 10 9 8 7 6 5 4 3 2 1 (Pbk.) Contents List of Abbreviations and Acronyms ix Preface xi ONE. The New Global Economic Order 3 ChangesintheWorldEconomy 5 IntellectualPerspectives 13 MyPerspective:State-centricRealism 15 PurposeofEconomicActivity 23 Conclusion 24 TWO. The Nature of Political Economy 25 WhatYouSeekIsWhatYouFind 31 TheNatureofanEconomy 38 EmbeddednessoftheEconomy 41 Conclusion 45 THREE. The Neoclassical Conception of the Economy 46 TheDisciplineofNeoclassicalEconomics 46 NatureofaMarket 54 MethodofComparativeStatics 57 IntellectualLimitations 60 EconomistsandPublicPolicy 69 ComparisonofEconomicsandPoliticalEconomy 74 Conclusion 76 FOUR. The Study of International Political Economy 77 DistributionofWealthandEconomicActivities 78 NationalAutonomy 80 ThePoliticsofInternationalRegimes 82 TheoryofHegemonicStability 93 GovernanceoftheGlobalEconomy 97 Conclusion 102 FIVE. New Economic Theories 103 ChangeandNeoclassicalEconomics 104 WorldViewoftheNewTheories 106 v CONTENTS TheNewTheories 108 Conclusion 127 SIX. The Political Significance of the New Economic Theories 129 NationalGovernmentsandDomesticEconomies 129 OligopolyandPowerinEconomicOutcomes 132 TechnologicalInnovation 135 ConvergentandDivergentEconomicGrowth 141 Conclusion 147 SEVEN. National Systems of Political Economy 148 DifferencesamongNationalEconomies 149 TheAmericanSystemofMarket-OrientedCapitalism 150 TheJapaneseSystemofDevelopmentalCapitalism 156 TheGermanSystemof“SocialMarket”Capitalism 168 SignificanceofNationalDifferences 174 IsOneSystemSuperiortotheOthers? 175 DoNationsCompetewithOneAnother? 180 Convergence,Harmonization,orMutualRecognition? 183 Conclusion 195 EIGHT. The Trading System 196 TheDebateoverFreeTrade 198 TradeandtheEconomy 202 RevisionsofConventionalTradeTheory 206 PostwarTradeRegime 217 TheUruguayRoundandWorldTradeOrganization 221 NewThreatstoanOpenTradingSystem 224 Conclusion 232 NINE. The International Monetary System 234 ThePostwarInternationalMonetarySystem 235 TheEndofFixedExchangeRates 238 TheFinancialRevolutionandMonetaryAffairs 239 EmbeddedTechnicalandPoliticalIssues 242 DevisinganInternationalMonetarySystem 248 ReformofInternationalMonetaryAffairs 250 UnityorFragmentationoftheMonetarySystem? 255 FeworManyNationalCurrencies? 258 Conclusion 259 TEN. The International Financial System 261 PartialGlobalizationofInternationalFinance 261 NatureofFinancialCrises 264 TheEastAsianFinancialCrisis 267 vi CONTENTS ControversyoverRegulationofInternationalFinance 271 Conclusion 277 ELEVEN. The State and the Multinationals 278 ExplanationsofFDIandtheMNC 279 TheMultinationalsandtheInternationalEconomy 289 IncreasedRegionalizationofServicesandManufacturing 292 DebateovertheMNCandtheNation-State 294 AnInternationalRegimeforFDIandMNCs 300 DoGlobalCorporationsPoseaThreat? 302 Conclusion 304 TWELVE. The State and Economic Development 305 TheRiseandDemiseofDevelopmentEconomics 306 TriumphofNeoliberalism 309 TheDebtCrisisandStructuralAdjustment 313 Theoryofthe“DevelopmentalState” 316 TheEastAsianMiracleProject 321 TheEastAsianFinancial/EconomicCrisis 329 TheFutureoftheDevelopmentalState 331 TheTransitionalEconomies 333 Conclusion 339 THIRTEEN. The Political Economy of Regional Integration 341 EconomicTheories 344 PoliticalTheories 348 AnEclecticApproach 358 Conclusion 361 FOURTEEN. The Nation-State in the Global Economy 362 TheLimitedNatureofEconomicGlobalization 364 AllegedConsequencesofEconomicGlobalization 366 EffectivenessofMacroeconomicPolicy 369 TheNeedforaHistoricalPerspective 375 Conclusion 376 FIFTEEN. Governing the Global Economy 377 NeoliberalInstitutionalism 379 TheNewMedievalism 390 Transgovernmentalism 398 GovernanceforWhat? 400 Conclusion 402 Select Bibliography 403 Index 411 vii Abbreviations and Acronyms ADC advanced developed (or industrialized) countries AFL-CIO American Federation of Labor and Congress of Industrial Organization APEC Asia-Pacific Economic Cooperation BWS Bretton Woods System CAP Common Agricultural Policy ECLA Economic Commission for Latin America EEC European Economic Community (Common Market) EMS European Monetary System EMU Economic and Monetary Union ERM Exchange Rate Mechanism EU European Union FDI foreign direct investment GATT General Agreement on Tariffs and Trade GDP gross domestic product G-7 group of seven major developed economies Group of 77 coalition of less developed countries HST hegemonic stability theory ILO International Labor Organization IMF International Monetary Fund IO international organization IPE international political economy ITO International Trade Organization LDC less developed country MITI Ministry of International Trade and Investment (Japan) MNC multinational corporation MOF Ministry of Finance (Japan) NAFTA North American Free Trade Agreement NATO North Atlantic Treaty Organization NBER National Bureau of Economic Research NEG new economic geography ix