International Political Economy #2

A Crash Course in Political Economy History

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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William Kindred Wineco
Indiana University at Bloomington

August 27, 2013

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What Is IPE?

IPE studies how politics shape developments in the global economy and how the global economy shapes politics. It focuses most heavily on the enduring political battle between the winners and losers from global economic exchange Oatley, ch. 1. IPE is an interdiscipline, drawing from international relations, comparative political science, economics, sociology, anthropology.

Its roots go back to the origins of social science, but as a distinct eld it is only about 40 years old. As such, it has focused on the politics of the global economy post-World War II.

Our rst few classes will consider how that system developed and how it matters still. For that, well look to history. In many ways, this is the story of the maturity (and immaturities) of early industrial capitalism.
W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective 2/23

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2013 vs. 1913

Similarities:

One leader in the global economy: UK then, US now. Rising challengers: Germany then, China (?) now. Highly-integrated economies then and now (at least in Europe in 1913): globalization in both eras. Large support for liberal economic policy.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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2013 vs. 1913, con.

Dierences:

No governance mechanisms for the global economy then, many now. No (overtly) imperial competition now; instead, inclusion. No gold standard now. Nationalism then; regionalism now (?). Democracy as exception then, norm now.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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2013 vs. 1913, con.

Throughout this course we will focus on three characteristics: hierarchy in the global power distribution, institutions, and interconnectedness. The basic argument this week: the rise of the US as a hegemonic power is inextricably linked with its prominence in the global economy. Following WWII, it chose to help govern the system in an inclusionary way. The rest of the world economy became (or is becoming) integrated into that system, in stages, ever since.

This system benets the US, is created in its image in key respects, and enhances American power. But it also provides opportunities for others that would not otherwise exist.
I.e., the global economy is politicized.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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Getting to 1913

The rst era of globalization was the product of British hegemony. The industrial revolution began there, so British producers were advantaged in global markets.

UK producers wanted to sell globally. UK consumers wants to buy globally.

British power pushed others into opening up trade markets. France was biggest tari reducer. By 1900, trade was 800% larger (as a share of the world economy) than it was in 1800. Shipping capacity increased by 2,000%. The trading system was buttressed by the gold standard, with London as the pre-eminent nancial center.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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Pre-WWI Imperialism

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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Pre-WWI Empires and Trade

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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Pre-WWI Taris

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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Pre-WWI Agriculture

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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Pre-WWI Manufacturing

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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Pre-WWI Immigration

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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The Gold Standard

Local currencies (e.g. British , U.S. $) were valued in gold weight.

Pros: price stability across countries reduced uncertainty and facilitated trade. Cons: governments had no exibility to adjust to economic booms and bust via monetary policy.

Markets speculated on which governments would go o gold. Financial ows surged, then shrank. As gold left, domestic economies crashed. Publics, esp in democracies, demanded action from their governments.
Insecurity of global economy under gold standard sparked a new round of imperial competition.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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Domestic Politics of the First Era of Globalization

Democracy is emerging and consolidating in some places and threatening to do so in others.

I.e., governments need to make their citizens happy.

Empire-building is one way to do that: create markets for exports, provide cheap goods for imports, get access to needed natural resources. Industrial technology increases means for imperialism: transportation, arms, communication. Socialism is increasingly popular among workers as industrialization spreads.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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International Politics of the First Era of Globalization

Other countries industrialize, esp post-Civil War US and post-unication Germany, but are not as open as UK. As others rise, UK becomes increasingly protectionist. Imperial competition quickens:

US irts with empire, but less need because of huge resources. Germany: No colonies, not much access to seas because Britain controlled them.
Germany builds a eet to challenge UK Royal Navy, touching o industrialized arms race.

By the onset of the 20th century UK is no longer biggest industrialized power, but it is still setting rules for the system. Arthur Balfour (ex-UK Prime Minister), 1907: We are probably fools not to nd a reason for declaring war on Germany before she builds too many ships and takes away our trade.
W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective 15/23

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Pax Brittanica Fades

UK responds to growth of others by instituting imperial preference for trade with its colonies. This further excludes Germany (and others). Lays the groundwork for World War I.

WWI not caused by the assassination of some Archduke by some anarchist. It was caused by an inability to manage the integration of rising powers into the global political economy. A century of peace and prosperity is destroyed.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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The USs Position

Woodrow Wilson understood that the pre-war system was undesirable. Woodrow Wilsons Fourteen Points (January 8, 1918):

1. No secret alliances, as under Concert of Europe. 2. Freedom of the seas. 3. Non-discrimination in trade (no need for empires). 4. General disarmament. 5 - 13. National self-determination / decolonialization. 14. An international association of nations to maintain sovereignty and guarantee independence.

Generally accommodative to defeated WWI powers (esp. Germany).

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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The Fallout from WWI

The Bolshevik Revolution in Russia.

The Treaty of Versailles: punitive reparations demanded from Germany. France and UK owe money to the US.

Germany pays debt to France/UK, France/UK pay debt to US, US lends to Germany.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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No Post-World War I Order

Wilson wins 1919 Nobel Peace prize, but is unable to attend peace talks. Treaty of Versailles (which U.S. never ratied) much harsher towards Germany than 14 Points. German dissatisfaction remains. No decolonialization, no free trade, no freedom of the seas, no general disarmament. League of Nations fails, largely because U.S. doesnt join. U.S. should take over leadership it is the biggest manufacturer, supplier of global nance, and overall economy but chooses to stay quasi-isolationist. U.S. boom weakened global economy; U.S. bust crushed it.

Governments responded with beggar thy neighbor exchange rate devaluations and trade protectionism; the rst wave of globalization was over.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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The Great Crash

No order. Economic instability (Great Depression):

Kindleberger: The international economic system [was] rendered unstable by British inability and U.S. unwillingness to assume responsibility for stabilizing it.
US nancial weakness prevents lending to Germany, Germany hyperinates to pay back UK/France, Depression spreads, gold standard abandoned, fascism rises (rst in Spain and Italy, then Germany). Economic instability often leads to political instability: WWII.

WWII was essentially the same war as WWI: no meaningful pathway for Germany to rise peacefully. No institutions to manage their integration. The result was a collapse in interconnectedness.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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The Depression: Collapse in Trade

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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The Depression: Devaluations

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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Segue

By the 1930s the system was disintegrating completely. Trade, output, employment, investment, everything collapsed. It was the worst crisis of capitalism. But we can think of WWI, the Great Depression, and WWII as being inextricably linked. These events demonstrate the importance of hierarchy, institutions, and interconnectedness. American policymakers learned these lessons as well. Even before the end of WWII they were determined not to repeat the same mistakes. The US decided not to let this happen anymore. But if it was going to manage the system, it wanted the system to be governed by its rules. And thats what well discuss on Thursday.

W. K. Wineco | IPE #2: Pre-WWII History in IPE Perspective

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