International political economy



International political economy is an academic discipline within the social sciences that analyzes international relations in combination with political economy. As an interdisciplinary field it draws on many distinct academic schools, most notably political science and economics, but also sociology, history, and cultural studies. The academic boundaries of IPE are flexible, and along with acceptable epistemologies are the subject of robust debate. This debate is essentially framed by the discipline's status as a new and interdisciplinary field of study.

Despite such disagreements, most scholars can concur that IPE is ultimately concerned with the ways in which political forces (states, institutions, individual actors, etc.) shape the systems through which economic interactions are expressed, and conversely the effects that economic interactions (including the power of collective markets and individuals acting both within and outside them) have upon political structures and outcomes.

IPE scholars are at the center of the debate and research surrounding globalization, both in the popular and academic spheres. Other topics that command substantial attention among IPE scholars are international trade (with particular attention to the politics surrounding trade deals, but also significant work examining the results of trade deals), development, the relationship between democracy and markets, international finance, global markets, multi-state cooperation in solving trans-border economic problems, and the structural balance of power between and among states and institutions. Unlike conventional international relations, power is understood to be both economic and political, which are interrelated in a complex manner.
Contents
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* 1 Origin
* 2 Traditional approaches to IPE
o 2.1 The Liberal Approach
o 2.2 The Realist view
o 2.3 The Marxist View
o 2.4 Criticisms of the traditional divide into the Liberal, Nationalist and Marxist views.
o 2.5 The Constructivist View
* 3 Notable IPE scholars
* 4 Notes and references
* 5 Further reading
* 6 External links

[edit] Origin

IPE emerged as a heterodox approach to international studies during the 1970s as the 1973 world oil crisis and the breakdown of the Bretton Woods system alerted academics, particularly in the U.S., of the importance, contingency, and weakness of the economic foundations of the world order. IPE scholars (ie. Eugene Low) asserted that earlier studies of international relations had placed excessive emphasis on law, politics, and diplomatic history. Similarly, neoclassical economics was accused of abstraction and being ahistorical. Drawing heavily on historical sociology and economic history, IPE proposed a fusion of economic and political analysis. In this sense, both Marxist and liberal IPE scholars protested against the reliance of Western social science on the territorial state as a unit of analysis, and stressed the international system.

[edit] Traditional approaches to IPE

Academic courses , journals and text books typically cover the various view points from which policy recommendations originate, and will endeavour to provide a ideologically neutral presentation of the field of study. Following a precedent set by one of the founding text books of the discipline [1] , individuals and organisations engaged in promoting particular policies, as well as many scholars active in this field, are commonly grouped into one of three worlds views, all of which have existed long before IPE emerged as a distinct academic discipline. These Categories are Liberal , Realist and Marxist. The Liberal category is relatively unified, the last two categories capture a vast range of outlooks . Widely shared views are only found at the highest level of abstraction:

The 'Liberal' view believes in freedom for private powers at the expense of public power (government). Markets, free from the distortions caused by government controls and regulation, will naturally harmonise demand and supply of scarce resources resulting in the best possible world for populations at large.

The 'Realist' view (formerly commonly labelled "Nationalist" ) accepts the power of free markets to deliver favourable outcomes, but holds that optimum conditions are generally obtained with moderately strong public power exerting some regulatory control.

The 'Marxist' view believes that only robust application of strong public power can check innate tendencies for private power to benefit elites at the expense of populations at large.

The 'Constructivist' view assumes that the domain of international economic interactions is not value-free, and that economic and political identities, in addition to material interests, are significant determinants of economic action. This view is often considered a sub-class of the Marxist approach.

[edit] The Liberal Approach
Much work in IPE examines the role of insitutions like the IMF and World Bank, which were established at this hotel near Bretton Woods

In economic terms, Liberalism is an approach associated with classical economics, neoclassical economics, Austrian School economics and Chicago school economics.

Favoured Policies Minimal or zero government control and regulation of trade. Calls for the privatisation of any organisations producing exportable goods.

History The Liberal approach is often traced to the work of Adam Smith - economics as we know it has been viewed as dawning with the Smithian revolution against Mercantalism. [2] Smith promoted the benefits of competition and division of labour in ensuring that scarce resources are turned into valuable goods and services in the most efficient way possible. He famously mentioned the invisible hand, a symbol for how the mechanisms of free markets turns selfish behaviour by various individual actors into the best possible outcome for society at large. The next major contribution to liberal theory was made by Ricardo, whose theory of comparative advantage suggested that trade between different nations could benefit both parties even in circumstances where one would intuitively feel that one nation would benefit from trade at the others expense. The liberal view point has generally been strong in Western accademia since it was first articulated by Smith in the 18th century. Only during the 1940s to early '70s did an alternative system, Keynesianism, command wide support in universaties. Keynes was chiefly concerned with domestic macroeconomic policy, however in IPE terms his mature views fall squarely into the Realist camp, in that Keynes called for a middle way between public and private power and favoured a managed system of global finance which he helped architect at Bretton Woods. The Keynesian consensus was successfully challenged with attacks launched by Friedrich Hayek's Austrian School and Milton Friedmans Chicago School as early as the 50s, which by the seventies had succeeded in displacing Keynes as the dominant influence. Keynes's approach to international relations, including his thinking on the economic causes of war and economic means of promoting peace, has received further attention with the onset of the global financial crisis and recession since 2008, especially through the work of Donald Markwell. [3][2]

In policy making terms Western governments have generally pursued mixed agendas drawing on both the liberal and realist view point. This has been the case from the dawning of modern commerce to the present day, although there have been periods where one or the other school had gained temporary accendency. The period leading up to 1914 is sometimes described as a golden age of classical enconomics, but in practice governments continued to be partially influenced by mercantialist ideology, and following WW1 economic freedom was constricted. After WWII the Bretton Woods system was established, essentially a realist construct that allowed governments to manage international finance, while still allowing considerable freedom of action for private commerce. In 1971 President Nixon bagan the rolling back of the Bretton Woods system and until 2008 the trend has been for increasingly liberalization of international trade and finance. Domestically the Atlantic nations since the 70s and large Asian states like China and India since the 90s have also largely pursued a mixture of realist and liberal policies. The only close to wholesale implementations of the liberal viewpoint being carried out by smaller developing nations, often with some degree of coercion by actors such as the US treasury or IMF who have been able to apply financial pressure when the developing nations faced various crises.[4] During 2008, liberal influences began to wane in the wake of the 2008–2009 Keynesian resurgence which the Financial Times described as a "a stunning reversal of the orthodoxy of the past several decades" [5]. From later 2008 world leaders have also been increasing calling for a New Bretton Woods System[6] .

[edit] The Realist view
Some accademics within IPE use game theory to explain outcomes of international negotiations, the simplest case being bilateral meetings where there are only two players.

Within IPE the Realist approach was until recently most commonly labeled nationalism. Historically the earliest distinct school of thought in this category was mercantilism. Other contemporary names for realist approaches are statism and developmentalism..

Favoured Policies Historically aggressive trade tariffs were employed to advantage domestic industry at the expense of competitors based in foreign nations. Colonial powers also encouraged trade with their own colonies. Contemporary advocates tend to favour the use of tariffs to protect infant industries in developing nations and sometimes specific sectors (e.g. agriculture) in developed ones. Some advocates within this approach come fairly close to the Liberal point of view, and stipulate conditions where all market controls should be dropped once certain development thresholds are exceeded (this is true even as far back as the late 19th / early 20th century, in the work of influential scholars such as Friedrich List and Alexander Hamilton.)

History The mercantilist view largely characterised policies pursued by state actors from the emergence of the modern economy in the fifteenth century up to the mid twentieth century. Sovereign states would compete with each other to accumulate bullion either by achieving trade surpluses or by conquest. This wealth could then be used to finance investment in infrastructure and to enhance military capability.

The contmporary realist view generally agree with liberals in viewing international trade as a win / win phenomena where firms should be allowed to collaborate or compete depending on market forces. The chief point of contention with liberals is that realists assert national interests can be best served by protecting new industries from foreign competition with high tarrifs until they’ve built up the capability to compete on the world market. One of the earliest formal expressions of this view was found in Alexander Hamilton’s ‘Report on Manufacturers’ which he wrote for the US Government in 1791.

After WWII a notable success story for the developmentalist approach was found in South America where high level of growth and equity were achieved partly as a result of policies originating from Raul Prebisch and economists he trained who were assigned to governments around the continent. After the liberal view re-established its ascendancy in the seventies it has been asserted that high levels of growth resulted from generally favourable international conditions rather than the Realist policies.

A contemporary statement of the Realist view is strategic trade theory, and there has been much debate as to whether the policies it suggests could be effective in solving some of the issues with globalisation, such as persistent north / south inequality divide.

[edit] The Marxist View
International meetings like the 2009 G-20 London summit are analysed by IPE scholars.

This category has been used to group together an array of different approaches which sometimes have very little in common with Marx’s focus on class, but which all believe in a strong role for public power. Labels for approaches within this category include: feminist, radical, structuralist, critical, underdevelopment and 'world systems'. Broadly the Marxist approach is associated with Heterodox economics.

Favoured Policies Generally favour strong protection from market forces by means of high tarrifs and other controls. At the extreme a preference for centrally directed trade with ideologically similar trading partners – that is the command economy as opposed to markets.

History Marx’s Das Kapital was published in 1867 and an economic system based on his ideas was implemented after the Russian Revolution of 1917. Since the collapse of the Soviet union and the COMECON trading bloc in 1991 no major group of trading partners or even single large economy has been run along Marxist lines. Problems with a Marxist command economy are seen as including the very high informational demands required for the efficient allocation of resources and corruptive tendencies of the very high degree of public power need to govern the process. Few academics currently promote classical Marxist views, especially in America, there are a few exceptions in Europe. More popular perspectives include feminist, environmental and radical – developmentalist. The social – constructivist view is an unusual school of thought sometimes grouped into this category. Rather than focus on the tradition factors effecting trade such as distribution of resources, technology & infrastructure, it emphasises the role of dialogue and debate in determining future developments in international trade and globalisation.

[edit] Criticisms of the traditional divide into the Liberal, Nationalist and Marxist views.

Critics [7] have asserted there is now too much variation in the different view points grouped into each category, especially those under the Nationalist and Marxist headings. Also the names can be considered misleading for the general public. The labels nationalist and Marxist have negative connotations, with many of the perspectives grouped under the Marxist label actually have very little to do with the classical Marxist position. Many advocates within the nationalist tradition being themselves strongly opposed to nationalism in the commonly understood fascist or racist sense and some professors have replaced the label "Nationalist" with "Realist" in their most recent books and courses [8].

[edit] The Constructivist View

Constructivism is an emerging field in international political economy, and not many works have been done in this area. In general, the constructivist view propounds that material interests, which is central to liberal, realist, and Marxist views, are not sufficient to explain patterns of economic interactions or policies, and that economic and political identities are significant determinants of economic action. Jalal Alamgir's works[9] are examples of constructivist applications in political economy. In his book India's Open-Economy Policy, Alamgir argues that India's economic reforms since 1991 have been fueled in strong part by policymakers' interpretation of India's own identity vis-a-vis the identity of its rivals, such as China.

[edit] Notable IPE scholars

* Robert Shiller
* Robert Gilpin
* John Ravenhill
* David N. Balaam
* Jonathan Bateman
* Robert Bates
* Jeffrey Warren Bennett
* Jagdish Bhagwati
* Mark Blyth
* Robert Brenner
* Benjamin Cohen
* Theodore Cohn
* Robert W. Cox
* Barry Eichengreen
* Peter B. Evans
* Jeffry Frieden
* Francis Fukuyama
* Geoffrey Garrett
* Gary Gereffi
* Stephen Gill
* Peter A. Hall
* Peter J. Katzenstein



* Stephen D. Krasner
* David A. Lake
* Donald Markwell
* Matthias Matthijs
* Helen Milner
* Jonathan Nitzan
* Thomas Oatley
* Ronen Palan
* Louis Pauly
* Robert Putnam and his two-level game theory
* Ronald Rogowski
* John Ruggie
* Beth Simmons
* Susan Strange
* Kees Van Der Pijl
* Michael Veseth
* Immanuel Wallerstein
* Matthew Watson
* Ellen Meiksins Wood
* Ngaire Woods
* Eric Helleiner

[edit] Notes and references

1. ^ Gilpins ,Robert (1987) The Political Economy of International Relations
2. ^ editor John Woods , author Prof. Harry Johson , "Milton Friedman: Critical Assessments", vol 2, page 73 , Routledge , 1970.
3. ^ Donald Markwell, John Maynard Keynes and International Relations, Oxford University Press, 2006. Donald Markwell, Keynes and International Economic and Political Relations, Trinity Paper 33, Trinity College, University of Melbourne, 2009. [1]
4. ^ Naomi Klein, The Shock Doctrine, Metropolitan Books, New York, NY 2007.
5. ^ Chris Giles in London, Ralph Atkins in Frankfurt and,Krishna Guha in Washington. "The undeniable shift to Keynes". The Financial Times. http://www.ft.com/cms/s/0/c4cf37f4-d611-11dd-a9cc-000077b07658.html. Retrieved on 2008-01-23.
6. ^ "European call for 'Bretton Woods II'". Financial Times. 2008-10-16. http://www.ft.com/cms/s/0/7cc16b54-9b19-11dd-a653-000077b07658.html. Retrieved on 2009-03-17.
7. ^ for example John Ravenhill, in chapter 1 of his 2005 book 'Global Political Economy'
8. ^ E.g. compare John Ravenhill's, 2005 edition of 'Global Political Economy' with the edition published in December 2007.
9. ^ E.g. Jalal Alamgir, India's Open-Economy Policy: Globalism, Rivalry, Continuity (London: Routledge, 2008).

[edit] Further reading

Cohen, Benjamin (2008). International Political Economy: An Intellectual History. Princeton, NJ: Princeton University Press. ISBN 978-0-691-13569-4.

Gill, Stephen (1988). Global Political Economy: perspectives, problems and policies. New York: Harvester. ISBN 074500265X.

Gilpin, Robert (2001). Global Political Economy: Understanding the International Economic Order. Princeton, NJ: Princeton University Press. ISBN 0-691-08677-X.

Ravenhill, John (2005). Global Political Economy. Oxford: Oxford University Press. ISBN 0199265844.

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Investment
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"Invest" redirects here. For other uses, see Invest (disambiguation).
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Investment or investing[1] is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. Investing is the active redirection of resources: from being consumed today, to creating benefits in the future; the use of assets to earn income or profit.[2]

An investment is the choice by the individual, after thorough analysis, to place or lend money in a vehicle (e.g. property, stock securities, bonds) that has sufficiently low risk and provides the possibility of generating returns over a period of time.[3] Placing or lending money in a vehicle that risks the loss of the principal sum or that has not been thoroughly analyzed is, by definition speculation, not investment.[4]

In the case of investment, rather than store the good produced or its money equivalent, the investor chooses to use that good either to create a durable consumer or producer good, or to lend the original saved good to another in exchange for either interest or a share of the profits.

In the first case, the individual creates durable consumer goods, hoping the services from the good will make his life better. In the second, the individual becomes an entrepreneur using the resource to produce goods and services for others in the hope of a profitable sale. The third case describes a lender, and the fourth describes an investor in a share of the business.

In each case, the consumer obtains a durable asset or investment, and accounts for that asset by recording an equivalent liability. As time passes, and both prices and interest rates change, the value of the asset and liability also change.

An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others' pockets. See Invest. The basic meaning of the term being an asset held to have some recurring or capital gains. It is an asset that is expected to give returns without any work on the asset per se.
Contents
[hide]

* 1 Types of investments
o 1.1 Business management
o 1.2 Economics
o 1.3 Finance
o 1.4 Real estate
+ 1.4.1 Residential real estate
+ 1.4.2 Commercial real estate
* 2 See also
* 3 Notes
* 4 External links

[edit] Types of investments

The term "investment" is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset.

[edit] Business management

The investment decision (also known as capital budgeting) is one of the fundamental decisions of business management: Managers determine the investment value of the assets that a business enterprise has within its control or possession. These assets may be physical (such as buildings or machinery), intangible (such as patents, software, goodwill), or financial (see below). Assets are used to produce streams of revenue that often are associated with particular costs or outflows. All together, the manager must determine whether the net present value of the investment to the enterprise is positive using the marginal cost of capital that is associated with the particular area of business.




In terms of financial assets, these are often marketable securities such as a company stock (an equity investment) or bonds (a debt investment). At times the goal of the investment is for producing future cash flows, while at others it may be for purposes of gaining access to more assets by establishing control or influence over the operation of a second company (the investee).

[edit] Economics

In economics, investment is the production per unit time of goods which are not consumed but are to be used for future production. Examples include tangibles (such as building a railroad or factory) and intangibles (such as a year of schooling or on-the-job training). In measures of national income and output, gross investment (represented by the variable I) is also a component of Gross domestic product (GDP), given in the formula GDP = C + I + G + NX, where C is consumption, G is government spending, and NX is net exports. Thus investment is everything that remains of production after consumption, government spending, and exports are subtracted.

Both non-residential investment (such as factories) and residential investment (new houses) combine to make up I. Net investment deducts depreciation from gross investment. It is the value of the net increase in the capital stock per year.

Investment, as production over a period of time ("per year"), is not capital. The time dimension of investment makes it a flow. By contrast, capital is a stock, that is, an accumulation measurable at a point in time (say December 31).

Investment is often modeled as a function of Income and Interest rates, given by the relation I = f(Y, r). An increase in income encourages higher investment, whereas a higher interest rate may discourage investment as it becomes more costly to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an opportunity cost of investing those funds rather than lending out that amount of money for interest.

[edit] Finance

In finance, investment is the commitment of funds by buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. Valuation is the method for assessing whether a potential investment is worth its price. Returns on investments will follow the risk-return spectrum.

Types of financial investments include shares, other equity investment, and bonds (including bonds denominated in foreign currencies). These financial assets are then expected to provide income or positive future cash flows, and may increase or decrease in value giving the investor capital gains or losses.

Trades in contingent claims or derivative securities do not necessarily have future positive expected cash flows, and so are not considered assets, or strictly speaking, securities or investments. Nevertheless, since their cash flows are closely related to (or derived from) those of specific securities, they are often studied as or treated as investments.

Investments are often made indirectly through intermediaries, such as banks, mutual funds, pension funds, insurance companies, collective investment schemes, and investment clubs. Though their legal and procedural details differ, an intermediary generally makes an investment using money from many individuals, each of whom receives a claim on the intermediary.


Within personal finance, money used to purchase shares, put in a collective investment scheme or used to buy any asset where there is an element of capital risk is deemed an investment. Saving within personal finance refers to money put aside, normally on a regular basis. This distinction is important, as investment risk can cause a capital loss when an investment is realized, unlike saving(s) where the more limited risk is cash devaluing due to inflation.

In many instances the terms saving and investment are used interchangeably, which confuses this distinction. For example many deposit accounts are labeled as investment accounts by banks for marketing purposes. Whether an asset is a saving(s) or an investment depends on where the money is invested: if it is cash then it is savings, if its value can fluctuate then it is investment.

[edit] Real estate

In real estate, investment money is used to purchase property for the purpose of holding or leasing for income and there is an element of capital risk.

[edit] Residential real estate

The most common form of real estate investment as it includes property purchased as a primary residence. In many cases the buyer does not have the full purchase price for a property and must engage a lender such as a bank, finance company or private lender. Different countries have their individual normal lending levels, but usually they will fall into the range of 70-90% of the purchase price. Against other types of real estate, residential real estate is the least risky.

[edit] Commercial real estate

Commercial real estate consists of multifamily apartments, office buildings, retail space, hotels and motels, warehouses, and other commercial properties. Due to the higher risk of commercial real estate, loan-to-value ratios allowed by banks and other lenders are lower and often fall in the range of 50-70%.

[edit] See also

* Appreciation
* Capital (economics)
* Capital accumulation
* Capital strike
* Diversifying investment
* Divestment
* Dollar roll
* Financial economics
* Foreign direct investment
* Gold as an investment
* Investment-specific technological progress
* Investor profile
* Investor relations
* List of accounting topics
* List of countries by gross fixed investment as percentage of GDP
* List of economics topics
* List of economists
* List of finance topics
* List of financial services companies (by country)
* List of management topics
* List of marketing topics
* Market trends
* Megaproject
* Optimism bias
* Over-investing
* Philatelic investment
* Psychology of previous investment
* Rate of return (ROR, a.k.a. ROI)
* Reference class forecasting
* Regulation Fair Disclosure
* Right-financing
* Risk
* Saving
* Silver as an investment
* Socially responsible investing
* Speculation
* Stock trader
* Strategic misrepresentation
* Value investing

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