INTERNATIONAL POLITICAL ECONOMY PERSPECTIVES ON GLOBAL POWER AND WEALTH FOURTH EDITION Jeffry A.Frieden Harvard University David A.Lake University of California, San Diego London and New York For Bedford/St. Martin’s Political Science Editor: James R.Headley Senior Editor, Publishing Services: Douglas Bell Production Supervisor: Joe Ford Project Management: Stratford Publishing Services, Inc. Cover Design: Lucy Krikorian Cover Photo: CORBIS/Stuart Westmorland Composition: Stratford Publishing Services, Inc. Printing and Binding: Haddon Craftsman, an R.R.Donnelley & Sons Company President: Charles H.Christensen Editorial Director: Joan E.Feinberg Director of Editing, Design, and Production: Marcia Cohen Manager, Publishing Services: Emily Berleth First published 2000 by Bedford/St. Martin’s. Simultaneously published and distributed outside North America by Routledge 11 New Fetter Lane, London, EC4P 4EE and representatives throughout the world. This edition published in the Taylor & Francis e-Library, 2003. Library of Congress Catalog Card Number: 99–62343 Copyright © 2000 by Bedford/St. Martin’s All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, except as may be expressly permitted by the applicable copyright statutes or in writing by the Publisher. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. ISBN 0-203-51858-6 Master e-book ISBN ISBN 0-203-54705-5 (Adobe eReader Format) ISBN: 0-415-22279-6 (Print Edition) Acknowledgments Acknowledgments and copyrights appear at the back of the book on pages 471–473, which constitute an extension of the copyright page. It is a violation of the law to reproduce the selections in this book by any means whatsoever without the written permission of the copyright holder. PREFACE The readings in International Political Economy: Perspectives on Global Power and Wealth are primarily intended to introduce the study of international political economy to those with little or no prior knowledge of it. The book is designed for use in courses in international political economy, international relations, and international economics. The selections present both clear and identifiable theoretical arguments and important substantive material. Fifteen of the 31 articles are new to this fourth edition of our book, and the theoretical approach has been updated to reflect the changing state of both the world and the field of international political economy. Although the selections can be read in any order, they are grouped in seven parts, which reflect some of the more common organizing principles used in international political economy courses. Each part begins with an introduction by the editors that provides background information and highlights issues raised in the readings. Each reading is preceded by an abstract summarizing its specific arguments and contributions. The readings were edited to eliminate extraneous or dated information, and most footnotes were removed. The introduction defines the study of international political economy, summarizes major analytical frameworks in the field, and identifies several current debates. In earlier editions, the introduction and readings were largely structured around three analytic perspectives: Realism, Marxism, and Liberalism. This framework is substantially downplayed in this edition. The field of international political economy has made significant progress over the last two decades, and this division—while useful as a pedagogic device—has become increasingly obsolete. To capture the most important work and current debates in the international political economy, we now highlight the analytic tensions between international and domestic explanations, on the one hand, and institutionalist- and society-centered explanations, on the other. These two dimensions create four distinct views, which we refer to as the international political, international economic, domestic institutionalist, and domestic societal approaches. Part I presents examples of these different perspectives on international political economy. The readings in this part are intended to suggest the underlying logic and types of arguments used by proponents of each approach. Although they are representative of their respective schools, they do not necessarily capture the wide range of opinion within each approach. iii iv Preface Part II, which reviews the history of the international economy since the nineteenth century, provides the background and perspective necessary to understand the contemporary international political economy. The selections describe the major developments in the history of the modern international economy from a variety of different theoretical viewpoints. The remainder of the book is devoted to the modern international political economy. Separate sections on production, money and finance, and trade look at the principal broad issue areas associated with the politics of international economic relations. Part VI focuses on the particular political and economic problems of developing and transitional economies. Finally, Part VII examines current problems in the politics of international economics. The selections in this volume have been used successfully in our courses on international political economy at the University of California, Los Angeles; Harvard University; and the University of California, San Diego (UCSD). In our own research, we approach the study of international political economy from very different perspectives. Yet we find that this set of readings accommodates our individual approaches to the subject matter while simultaneously covering the major questions of the field. For this edition, Patricia Lindenboim and Michael Spence at Harvard and Angela O’Mahony at UCSD provided valuable research and editorial assistance. Leslie S.Connor of Stratford Publishing Services prepared the manuscript for publication. We want to thank our respective spouses, Anabela Costa and Wendy K.Lake, for their continuing encouragement. Jeffry A.Frieden David A.Lake CONTENTS Preface iii About the Editors ix Introduction: International Politics and International Economics 1 I CONTENDING PERSPECTIVES ON INTERNATIONAL POLITICAL ECONOMY 17 1 State Power and the Structure of International Trade 19 STEPHEN D.KRASNER 2 The Political Economy of the Smoot-Hawley Tariff 37 BARRY EICHENGREEN 3 Institutions and Economic Growth: A Historical Introduction 47 DOUGLASS C.NORTH 4 States, Firms, and Diplomacy 60 SUSAN STRANGE II HISTORICAL PERSPECTIVES 69 5 The Rise of Free Trade in Western Europe 73 CHARLES P.KINDLEBERGER 6 International Trade, Domestic Coalitions, and Liberty: Comparative Responses to the Crisis of 1873–1896 90 PETER ALEXIS GOUREVITCH v vi Preface 7 International Investment and Colonial Control: A New Interpretation 109 JEFFRY A.FRIEDEN 8 British and American Hegemony Compared: Lessons for the Current Era of Decline 127 DAVID A.LAKE III PRODUCTION 141 9 The Multinational Enterprise as an Economic Organization 145 RICHARD E.CAVES 10 Third World Governments and Multinational Corporations: Dynamics of Host’s Bargaining Power 156 SHAH M.TARZI 11 “A New Imperial System”? The Role of the Multinational Corporations Reconsidered 167 DAVID FIELDHOUSE 12 Strategic Trade and Investment Policies: Implications for the Study of International Political Economy 180 JEFFREY A.HART AND ASEEM PRAKASH IV MONEY AND FINANCE 193 13 The Domestic Politics of International Monetary Order: The Gold Standard 199 LAWRENCE BROZ 14 Hegemonic Stability Theories of the International Monetary System 220 BARRY EICHENGREEN 15 The Triad and the Unholy Trinity: Problems of International Monetary Cooperation 245 BENJAMIN J.COHEN 16 Exchange Rate Politics 257 JEFFRY A.FRIEDEN 17 EMU: Why and How It Might Happen 270 CHARLES WYPLOSZ Preface vii 18 The Obsolescence of Capital Controls? Economic Management in an Age of Global Markets 280 JOHN B.GOODMAN AND LOUIS W.PAULY V TRADE 299 19 Protectionist Trade Policies: A Survey of Theory, Evidence, and Rationale 303 CLETUS C.COUGHLIN, K.ALEC CHRYSTAL, AND GEOFFREY E.WOOD 20 Commerce and Coalitions: How Trade Affects Domestic Political Alignments 318 RONALD ROGOWSKI 21 The Political Economy of Trading States: Factor Specificity, Collective Action Problems, and Domestic Political Institutions 327 JAMES E.ALT AND MICHAEL GILLIGAN 22 Are Your Wages Set in Beijing? 343 RICHARD B.FREEMAN 23 The Political Economy of Nontariff Barriers: A Cross-national Analysis 353 EDWARD D.MANSFIELD AND MARC L.BUSCH 24 Explaining Business Support for Regional Trade Agreements 366 RONALD W.COX VI ECONOMIES IN DEVELOPMENT AND TRANSITION 377 25 International Development: Is It Possible? 383 JOSEPH E.STIGLITZ AND LYN SQUIRE 26 Development: The Market Is Not Enough 392 ROBIN BROAD, JOHN CAVANAGH, AND WALDEN BELLO 27 Globalization and Inequality, Past and Present 405 JEFFREY A.WILLIAMSON 28 Inflation and Stabilization 417 STEPHAN HAGGARD viii Preface VII CURRENT PROBLEMS IN INTERNATIONAL POLITICAL ECONOMY 431 29 Environmental Protection and Free Trade: Are They Mutually Exclusive? 433 ALISON BUTLER 30 Globalization and the Changing Logic of Collective Action 446 PHILIP G.CERNY 31 Sense and Nonsense in the Globalization Debate 461 DANI RODRIK INDEX 471 ABOUT THE EDITORS Jeffry A.Frieden (Ph.D., Columbia University) is professor of government at Harvard University. He specializes in the political economy of international monetary and financial relations. His book publications include Debt, Development, and Democracy: Modern Political Economy and Latin America, 1965–1985 (Princeton: Princeton University Press, 1991) and Banking on the World: The Politics of American International Finance (New York: Harper & Row, 1987), which has been issued in both Japanese and British editions. David A.Lake (Ph.D., Cornell University) is professor of political science at the University of California, San Diego, and coeditor of the journal International Organization. He has published widely in the field of international relations and international political economy. His principal book publications include Power, Protection, and Free Trade: International Sources of U.S. Commercial Strategy, 1887–1939 (Ithaca: Cornell University Press, 1988) and Entangling Relations: American Foreign Policy in its Century (Princeton: Princeton University Press, 1999). ix