The Politics of International Economic Relations PDF
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The 0/ Politics International Economic Relations FIFTH EDITION The Politics of International Economic Relations FIFTH EDITION loan Edelman Spero leffrey A. Hart Indiana University o.jD~ L1:?~·b ~. -- t.ri ,.\ §- ~/o 0(,.0 'I-~Frallc\" London and New York First published 1997 by St. Martin's Press, Inc. 175 Fifth Avenue, New York, NY 10010 Sponsoring editor: Beth A. Gillett Manager; publishing services: Emily Berleth Senior editor; publishing services: Douglas Bell Project management and graphics: York Production Services Production supervisor: Dennis Para Cover Design: Patricia McFadden Cover art: David C. Chen, StockworkslMartha Productions, Inc. Simultaneously published and distributed outside North America by Routledge 2 Park Square, Milton Park, Abingdon, Oxfordshire OX14 4RN and representatives throughout the world. Reprinted 2000 Routledge is an imprint 0/ the Taylor & Francis Group Copyright © 1997 by St. Martin's Press, Inc. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, inc1uding photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. ISBN: 0-415-16648-9 Acknowledgements Acknow1edgements and copyrights are continued at the back of the book on page 430, which constitutes an extension of the copyright page. Ta Michael, fasan, and Benjamin JES Ta faan and Zachary JAH Contents Preface xi About the Authors xiii Part One An Overview 1 The Management of International Economic Relations since World War II 1 Part Two The Western System 2 International Money Management 8 The Original Bretton Woods Agreement 10 / Unilateral U.So Management 12 / Multilateral Management under U.So Leadership 13 / Breakdown of Bretton Woods 16 / Management Dilemmas in the Post-Bretton Woods Era 24 / Europe's Efforts to Build a Regional Monetary System 30 / U.So Policy: Alternating between Unilateralism and Collective Management 35 / Monetary Man agement in the I990s 44 3 International Trade and Domestic Politics 49 The Havana Charter 50 / Multilateral Management under U.So Leadership 52 / Structural Change and Protectionism 57 / Pluralism 62 / The New Protectionism 71 / New Issues 74 / The New Regionalism 78 / The Tokyo Round 80 / The Uruguay Round 82 / The Uruguay Round Agreement 86 / Conclusion 87 4 The Multinational Corporation and the Issue of Management 96 Common Characteristics of MNCs 98 / Trends in FDI and Other MNC Activities 103 / Explaining the Rapid Growth in MNC Activity 108 / Internalization Theory 109 / Product Cycle Theory 110 / Obsolescing Bargain Theory 111 / Oligopoly Theory 111 / The Tariff Jumping Hypothesis 112 / The Importance ofthe Home Country 112 / The Consequences of MNC Activity 113 / MNCs in Canada and Europe 115 / National Economic Control118 / Interference by Home Governments of Multinationals 121 / Multinationals and the National Political Process 124 / International Regimes for Foreign Direct vii viii Contents Investment /26 / National Management /27 / Regional Management 134 / International Management 137 Part Three The North-South System 5 The North-South System and the Possibility of Change 149 Liberal Theories of Economic Development 152 / Marxist and Neo Marxist Theories of Development 153 / The Structuralists 154 / Contrasting Marxist and Structuralist Perspectives 155 / Weaknesses in the Three Perspectives 156 / Development Strategies 161 6 International Financial Flows 167 Foreign Aid and the Postwar Order 167 / The Link between Aid and Foreign Policy 168 / Stagnation ofA id 170 / Financial Flows in the 1970s: Politicization and Privatization 172 / The Aid and Debt Crises of the 1980s 179 / The Impact of Aid 182 / The Onset of the Debt Crisis 186 / Debt Crisis Management 189 / Debt Fatigue 198 / From Debt Crisis to Emerging Markets 203 / The Impact of the Debt Crisis on Third World Strategy 206 / The Future ofA id and Financial Flows 207 7 Trade and Development Strategies 215 Isolation from the Postwar Trading Order 215 / From Import Substitution to Trade Expansion 217 / Unity and Confrontation 221 / Commodity Power and the New International Economic Order 225 / The New Order for the 1980s 230 / The New Pragmatism 234 / Beyond the Uruguay Round 240 8 Multinational Corporations in the Third World 249 Power: The Local Economy 249 / Power: Local Government 252 / EjJiciency, Growth, and Welfare 254 / National Political Process 258 / Management of Foreign Investment by Less-Developed Countries 260 / The 1980s: The New Pragmatism 265 / The Future: Cooperation or Conflict? 270 9 Oil, Commodity Cartels, and Power 276 The Dependency System of International Oil 276 / The Process of Change: From Negotiation to Unilateral Power 280 / OPEC Management 283 / The Second Oil Crisis: A System Out of Control Contents ix 286 / OPEC in Deeline: The World Oil Glut 289 / Oil Priee Wars 295 / The GulfWar 298 / The Future ofOPEC 300/ Other OPECs? 301 / Bauxite, Bananas, and Copper 306 Part Four The End of the Cold War and Its Consequences for the World Economy 10 East-West Economic Relations during and after the Cold War 316 East-West Eeonomie Relations in the Early Cold War Period 317 / The Creation of an Eastern Eeonomie Bloe 318 / F orees of Change in the East 322 / East-West Eeonomie Relations: From the 1960s to the End of the Cold War 329 / Gorbaehev's Eeonomie and Politieal Reforms 333 / The Failure of Perestroika 336 / Problems of Transition from Communism 337 / Yeltsin: Crisis and Reform 338 / Russian Foreign Economie Policies and the West's Response 342 / Eeonomie Reform in Eastern Europe 343 / China 346 / East-West Eeonomie Relations sinee the End of the Cold War 357 Conclusion: Globalization and the New World Order 365 A New World Order? 366 / A New World Order, or a Reformed World Order? 369 Glossary 371 Aeronyms 388 Seleeted Bibliography 391 Index 431 Preface The first edition of The Politics of International Economic Relations, pub lished in 1977, was written to fill a void in the study of international re1ations the gap between international politics and international economies. Since 1977 that gap has narrowed significantly. International political economy has emerged as a new and increasingly prominent field in political science. Theoretical and empirical analyses of the politics of international economic relations appear reg ularly in professional journals and books. Although the most important bridge building has come from political scientists, economists are now also inc1uding political variables in their analyses and applying economic theory to the study of political behavior. At the same time, a new generation of students in a variety of fields is being made aware of the interrelationship of economics and politics and is leaming to use and integrate the tools of both fields. Much has happened since 1977 to reinforce this academic evolution. Above all, the turbulence in the world economy has highlighted the political dimension of international economic relations. The persistent problems of the dollar and other international currencies, the many trade disputes between the United States and its major trading partners, crises in world oil markets, and the continuing financial crises in the developing countries have obliged scholars to reexamine the assumptions that separated the disciplines of economies and political science for over a century. The focus of analysis and organization in this book has not changed much since the first edition. This edition continues the tradition established in previous ones of discussing problems that are faced by the developing countries and the formerly Communist countries separately from those that primarily affect the industrialized capitalist countries. In this fifth edition, we have added new mate rial that reflects the major changes in the international system since the end of the Cold War. Also in this new edition, we discuss and try to explain the increasing pragmatism of domestic and foreign economic policies in many parts of the Third World, but especially in the faster-growing developing countries. Finally, this edi tion adds new material on the growing gap between the poorest regions of the world and the richest ones. The first four editions of this book were written by Joan Spero. Each new edition has reflected a different dimension of her professional experience. At the time the first edition appeared, she was assistant professor of political science at Columbia University. When the second edition was published in 1980, she was ambassador of the United States to the Economic and Social Council of the United Nations. The third edition was published in 1985, when she was senior vice president of international corporate affairs at American Express Company. When the fourth edition was published in 1989, Joan Spero was senior vice pres ident and treasurer at American Express. This book has benefited, in her view, from her experiences in the academic, governmental, and business worlds. Joan xi xii Preface Spero is currently Under Secretary of State for Economic, Business, and Agricultural Affairs. While this new edition of The Politics 01 International Economic Relations reflects Joan Spero's experience as a senior policy maker in the Clinton adminis tration, it was not written as an official statement ofU.S. Government policy, but, rather, as a continuation of the analytical approach of the first four editions. The opinions and views expressed are those of the author and are not necessarily those of the Department of State. The fifth edition was written jointly by Joan E. Spero and Jeffrey A. Hart, a professor of political science at Indiana University. Hart has also served for short periods in governmental positions. In 1980, he was a professional staff member of President Carter's Commission for a National Agenda for the Eighties. Hart was an internal contractor for the Congressional Office of Technology Assessment in 1985-1986 and has collaborated since 1987 with members of the Berkeley Roundtable on the International Economy (BRIE), inc1uding Michael Borrus, Laura D' Andrea Tyson, currently chair of the National Economic Council, and Stephen Cohen. He echoes Joan Spero's sentiments about the intellectual benefits of combining academic and nonacademic pursuits. We owe a debt of gratitude to Jeffry Frieden for reading and providing com ments on the entire manuscript and to the following individuals for their review of portions of the current edition: Jack Bielasiak, Catherine Gwin, and Stephen Kobrin. We would also like to thank the following reviewers for their time and efforts: M. Mark Amen, University of South Florida; Steve Chan, University of Colorado at Boulder; John A. C. Conybeare, University of Iowa; Patricia Davis, University of Notre Dame; C. Roe Goddard, American Graduate School of International Management; Stephan Haggard, University of California, San Diego; Edward D. Mansfield, Columbia University; Renee Marlin-Bennett, The American University; Curtis Peet, Bowling Green State University; David M. Rowe, The Ohio State University; and Veronica Ward, Utah State University. Extensive research assistance for this edition was provided by Sangbae Kim and Khalil Osman, both graduate students at Indiana University. Previous editions benefited from research assistance provided by Kristin Brady, Stephen GaulI, Christiana Horton, Deirdre Maloney, and Kathleen McNamara. The following individuals provided advice on drafts of previous editions of the book: Andrew Barteis, Toby Gati, Lisa Lamas, Charles Levy, Edward Morse, Richard O'Brien, and John Sewell. In addition, we would like to thank the College Division of St. Martin's Press and its fine editorial staff, inc1uding Don Reisman, Beth Gillett, and Kimberly Wurtzel, for supporting this revision of the text. Our thanks, as well, to Dolores Wolfe and the staff of York Production Services. Joan E. Spero Jeffrey A. Hart
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