ULUSLARARASI İLİŞKİLER TEORİLERİ I

The British East India Company was set up on December 31, 1600 for the exploitation of trade with Southeast Asia and India. Starting as a monopolistic trading body, the company became involved in politics and acted as an agent of British imperialism in India from the early 18th century to the mid-19th

The economic liberals believe that individuals act in rational ways to maximize their self-interests, that when individuals act rationally, markets are created to produce goods and services that people need, and that market functions best when it is free of government interference. At the macro level, international wealth is believed to be maximized with free exchange of goods and services on the basis of comparative advantage.

For the liberals, nations can and should be specialized in certain arenas. For instance, the United States has huge amount of land and great soil, thus it can produce food. Gulf countries have oil, so they can produce oil. Japanese and South Korean companies can get into shipbuilding, while Chinese can make inexpensive, labor-intensive products. David Ricardo (1772-1823) calls this “comparative advantage”. That is, states should produce and export those products which they can produce most efficiently, relative to other states.

The nationalists believe that closing off an economy to external influences can be beneficial to growth and economic progress. Also the nationalists see companies as elements of state power.Besides, the nationalists believe that closing off an economy to external influences can be beneficial to growth and economic progress. The nationalists also believe that free trade only benefits the wealthiest, most advanced nations.  In head-to-head competition, the advanced industries can easily defeat the less advanced industries. Therefore, infant industries should be protected by the state from foreign competition, or else, they simply perish. This does not mean putting an end to trade with other nations. It means protecting industries that are identified as being infant but crucial to national power.

Within the structuralist approach, there are actually two sub-approaches: the Marxist approach, which rejects capitalism completely, and the dependency approach, which aims to reform it.

The liberal approach can perhaps be best summarized by the writings of Adam Smith (1723- 1790), a famous English economist. Smith argues that the key to national wealth, and therefore national power, is economic growth. The key to economic growth is free trade, the free flow of goods, services and investment across borders.

Delegates from 44 countries met in the United States, in Bretton Woods, New Hampshire in July 1944. The main goals were to ensure a foreign exchange rate system, prevent competitive devaluation, encourage international trade, and eventually promote economic growth. With the intention of realizing these goals, the Bretton Woods Agreement was signed on July 22, 1948, whereby the so-called Bretton Woods system came into being. In 1958, the Bretton Woods system became fully functional, as national currencies became convertible.

Even though the Bretton Woods monetary system itself collapsed , the so-called Bretton Woods institutions, the World Bank, the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT), now the World Trade Organization (WTO), have survived, still directing international trade and finance to a great extent. The IMF was designed to monitor exchange rates, secure financial stability, and promote sustainable economic growth by providing policy, advice and financing the members and by working with developing nations to help them achieve macroeconomic stability.

Some liberal economists go further than extolling the economic benefits of MNCs, pointing a positive relationship between the international liberal economy and peace. It is argued that through enhanced international trade and growing interdependence, national differences would vanish and increasing economic well-being would eventually lead to world peace (Mingst and Arreguin-Toft, 2011).

Globalization is, in a generic sense, a process of interaction among people, companies, and governments of different nations, a process driven by international trade and investment.

From the beginning of the 19th century to the First World War, the rapid expansion of colonialism and the Industrial Revolution occurred as a result of other major technological improvements in communications, transportation, and manufacturing processes. The European states needed raw materials found in colonies, hence international trade expanded, so did international investment. This way, capital especially moved from Europe to North America in search for higher profits. Throughout the 19th century, it, in a way, became necessary for European industrialized nations to expand their markets globally in order to sell products that they could not sell domestically in their countries. Besides, businessmen and bankers had excess capital to invest, and foreign investments offered the incentive of greater profits, despite the risks. The need for cheap labor and a steady supply of raw materials necessitated that the industrial nations maintain firm control over these unexplored areas. Only by directly controlling these regions, which meant setting up colonies under their direct control, could the industrial economy work without any serious problem (www. tamaqua.k12.pa.us).

The era of colonialism brought about serious consequences, changing both Western society and its colonies. Through it, Western countries managed to establish a global economy in which the transfer of goods, money, and technology needed to be regulated in an orderly way to ensure a continuous flow of natural resources and cheap labor for the industrialized world. Yet colonialism adversely affected the colonies. Under foreign rule, local economies could not find a chance to grow. Imported goods wiped out local ones. This way, powers held back the colonies from developing industries. Colonialism also led to a cultural clash. By the start of the 20th century, Western nations had control over most of the globe. Europeans were convinced that they had superior cultures and forced the people to accept the Western way of life. The pressures to Westernize led the colonial people to reevaluate their traditions. But the good thing was Western countries introduced modern medicine that stressed the use of vaccines and more sanitary hygiene, helping to save lives and increase life expectancy.

As also understood from the information given, the correct answer is A. The argument in the option I “Under foreign rule, local economies could not find a chance to grow. Imported goods wiped out local ones.” and in the option II “Colonialism led to a cultural clash. The pressures to Westernize led the colonial people to reevaluate their traditions.” can be used by the one who has been planning to underline the drawbacks of colonialism, so the correct answer is A. The argument in the option III underlines the good side of that period. The arguments in the options  IV and V express the reasons in favor of colonists for the rise of colonialism.

Economic nationalism, as another major approach to IPE, refers, in a generic sense, to an ideology that favors state interventionism in the economic sphere. The nationalists also believe that closing off an economy to external influences can be beneficial to growth and economic progress. Thus, economic nationalism can be defined as a mixture of trade protectionism and economic planning, with an aim to preserve national interests in the context of world markets.

The main theorists of economic nationalism are Alexander Hamilton (1780-1804), the first United States Secretary of the Treasury, who wrote The Report on the Subject of Manufactures (1791) and Friedrich List (1789-1846), a Prussian economist, who wrote The National System of Political Economy (1841). According to them, the simple formula is that industrial power equals national power and national power equals independence (Hamilton, 2001; List, 1991).

The rise of economic nationalism in recent history occurred particularly in the first part of the 20th century and it was essentially a response to the economic crises, nationalist movements, and enlarged states. In this respect, economic nationalism emerged as a criticism of economic liberalism as well. It is argued that states compete economically. This is very different from liberalism. The liberals believe that companies compete economically, but states do not. However, the nationalists see companies as elements of state power. So from this point of view, while Ford and McDonald’s, for example, contribute to United States power, Honda and Fuji contribute to Japanese power. The nationalists also believe that free trade only benefits the wealthiest, most advanced nations. In headto-head competition, the advanced or “mature” industries can easily defeat the less advanced or “infant” industries.

As also understood from the information given, the correct answer is C. The arguments in the option III “Closing off an economy to external influences can be beneficial to growth and economic progress.”, in the option IV “The simple formula is that industrial power equals national power and national power equals independence.” and in the option V “In headto-head competition, the advanced or “mature” industries can easily defeat the less advanced or “infant” industries.” can be used by a debater who advocates economic nationalism. The arguments in the option I “Political leaders should allow trade among nations to expand and keep government intervention in that trade down to a minimum.” and  “The government should be out of foreign trade, as well as domestic economy, as much as possible.” are the arguments in favor of economic liberalism.

The liberal approach can perhaps be best summarized by the writings of Adam Smith (17231790), a famous English economist. Smith argues that the key to national wealth, and therefore national power, is economic growth. The key to economic growth is free trade, the free flow of goods, services and investment across borders. Hence, political leaders should allow trade among nations to expand and keep government intervention in that trade down to a minimum. This means that imports and exports should flourish with as little restriction as possible (Smith, 2003).

As also undertsood from the information given the arguments in the option III and in the option IV are the arguments of economic liberalism approach and can be evaluated as the ones which do not not conflict with the arguments of economic nationalism by the one who advocates economic nationalism, so the correct answer is D.

The ones in the option I “Free trade only benefits the wealthiest, most advanced nations.” and in the option II “The simple formula is that industrial power equals national power and national power equals independence.” are the arguments of economic nationalism.

Economic structuralism, on the other hand, is concerned with the international division of labor created by the capitalist system. It sees that the division of labor is unfair, creating categories of rich and poor people, as well as rich and poor nations, at the macro level. Within the structuralist approach, there are actually two sub-approaches: the Marxist approach, which rejects capitalism completely, and the dependency approach, which aims to reform it. Particularly Karl Marx (1818-1883) and Friedrich Engels (1820-1895) created a great amount of literature outlining a theoretical critique of capitalism. The best place to look for details would be Marx and Engels’ The Communist Manifesto (1848) or Marx’s The Capital (1867).

As also understood from the information given, the correct answer is D. Karl Marx and Friedrich Engels can be said to be the main theorists of economic structualism approach. Adam Smith and David Ricardo formulated economic liberalism approach. Alexander Hamilton and Friedrich List can be said to be main theorists of economic nationalism.

In the late 19^th century, the gold standard system was first adopted by the economically-developed nations, under the leadership of the Great Britain, the hegemonic power at that time. The gold standard was a monetary system where a country’s currency or paper money had a value directly linked to gold. With the gold standard, countries agreed to convert paper money into a fixed amount of gold. A country that used the gold standard set a fixed price for gold and bought and sold gold at that price. That fixed price was used to determine the value of the national currency (Bryan, 2010). Until the First World War, most countries in Europe were on the gold standard. Yet with the war, the system collapsed, because of the declining power of Great Britain and of the terrible economic conditions during and after the war. Even though there were some efforts to return to the safety of the gold standard in the second part of the 1920s, this did not last long due to the stock market crash, or the Great Depression, in late 1929. Therefore, the interwar period was basically an era characterized by financial instability and low level of international trade, with no vivid economically hegemonic power. The Great Depression, the worst economic crisis in the history of the industrialized World, began after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors. Then the Second World War erupted in late 1939, lasting about six years. Towards the end of the war, a stable finance and monetary system was aimed to be established by the Western countries fighting against Nazi Germany under the leadership of the United States. To that end, delegates from 44 countries met in the United States, in Bretton Woods, New Hampshire in July 1944. The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was held from July 1-22, 1944. The main goals were to ensure a foreign exchange rate system, prevent competitive devaluation, encourage international trade, and eventually promote economic growth.

With the intention of realizing these goals, the Bretton Woods Agreement was signed on July 22, 1948, whereby the so-called Bretton Woods system came into being.

In 1958, the Bretton Woods system became fully functional, as national currencies became convertible. In order to convert currencies, countries settled their international balances in dollars, while United States dollars were fully convertible to gold. As also understood from the information given, the correct chronological order of the events in the options is “I, II, III, IV, V”, so the correct answer is A.

The Bretton Woods system was eventually dissolved between 1968 and 1973. The overvaluation of the United States dollar led to concerns among the members of the system over the exchange rates and their tie to the price of gold. In August 1971, President Richard Nixon announced the “temporary” suspension of the dollar’s convertibility into gold. While the dollar had struggled throughout most of the 1960s within the parity established at Bretton Woods, this crisis marked the breakdown of the system. A later attempt to revive the fixed exchange rates failed and by March 1973, major currencies began to float against each other.

Even though the Bretton Woods monetary system itself collapsed this way, the so-called Bretton Woods institutions, which were set up along with the Bretton Woods Agreement, the World Bank, the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT), now the World Trade Organization (WTO), have survived, still directing international trade and finance to a great extent. As also understood from the information given, the crrect answer is E.

The theory of hegemonic stability holds the assumption that the world system is most prosperous when there is a hegemon to organize the international political and economic system. Historically, the periods of the Dutch (162072), British (1815-73), and United States (post1945) hegemony are commonly cited as evidence of the link between hegemony and prosperity (Kindleberger, 1977, 1981). When hegemony breaks down, it is assumed, the international system falls into disorder, with the resulting decline in peace and prosperity (Keohane, 1981). As also understood from the information given the correct answer is A. “The world system is most prosperous when there is a hegemon to organize the international political and economic system.” and “When hegemony breaks down, it is assumed, the international system falls into disorder, with the resulting decline in peace and prosperity.” are the assumptions which the theory ofhegemonic stability holds. However, some scholars argue that hegemony is a self-defeating and hence, temporary condition. While the hegemonic state bears the burdens of organizing the international system and supplying public goods, free-rider states prosper and increase the burdens on the hegemon. At some point, the hegemon comes to the conclusion that it is unable to bear the costs of the system it has created. So either it begins to put domestic interests over its international obligations or it becomes too weak to realize its widespread commitments. The Great Britain’s decline in the late 19th and early 20th century can be cited as an example of that (www. pugetsound.edu/what-is-ipe).

The history of MNCs is closely related to the history of colonialism. Some of the first multinationals were directed by European monarchs in order to conduct expeditions. Many of the colonies that were not held by Spain or Portugal were under the administration of some of the world’s earliest multinationals. The East India Company, which showed up in as early as 1660, founded by the British, was one of them. It was headquartered in London and took part in international trade and exploration with trading posts in India. Some other examples include the Swedish Africa Company, founded in 1649, and the Hudson’s Bay Company, which was incorporated in Canada in the 19th century. However, the MNCs, as we know today, did not really appear until the 19th century. That was due to the rise of industrial revolution. The development of the factory system; that is, capital-intensive manufacturing processes, combined with better storage techniques and faster transportation, rapidly brought about the emergence of many MNCs. During the 19th and early 20th century, the search for natural resources and pressure to protect or increase markets drove transnational expansion by companies almost exclusively from the United States and Western Europe. As also understood from the information given, all statements with regard to the history of MNCs in the options are correct, so the correct answer is E.

Right after the Second World War, the United States-based MNCs heavily dominated foreign markets for a few years. Then from the 1950s on, European and Japanese MNCs started to show up and in time, they quickly increased in number. At the same time, major technological advances in shipping and communication accelerated the expansion of these MNCs almost all over the world. By the early 1970s, major MNCs had come to control about 70-80 percent of the world trade outside the centrally planned economies. Over the past half century, particularly after the end of the Cold War, there has been an obvious proliferation of MNCs. For example, while in 1970, there were some 7.000 parent MNCs, today that number has jumped to roughly 38.000. Approximately 90 percent of them is based in the industrialized world, controlling over 207.000 foreign subsidiaries. The large number of MNCs can be somewhat misleading, however, since the wealth of MNCs is actually concentrated among the top 100 firms (Greer and Singh, 2018).

MNCs have long been subject to serious discussions. Advocates of MNCs argue that they create job opportunities for many and technologically advanced goods. It is also said that MNCs tend to establish operations in markets where their capital is most efficient or wages are lowest. By producing the same quality of goods at lower costs, multinationals reduce prices and increase the purchasing power of consumers worldwide. Some liberal economists go further than extolling the economic benefits of MNCs, pointing a positive relationship between the international liberal economy and peace. It is argued that through enhanced international trade and growing interdependence, national differences would vanish and increasing economic well-being would eventually lead to world peace (Mingst and Arreguin-Toft, 2011). Those opposed to MNCs, on the other hand, say that multinationals have undue political influence over governments, exploit developing nations, and create job losses in their own home countries. In addition, they argue that MNCs tend to develop a monopoly for certain products, driving up prices for consumers. MNCs are also said to have a detrimental effect on the environment because their operations may encourage land development and the depletion of local resources. Moreover, the introduction of multinationals into a host country’s economy may lead to the downfall of smaller, local businesses as well, since MNCs have better products and they can afford to even offer them at lower prices, as they have the financial resources to buy in bulk. Some critics further claim that MNCs breach ethical standards, accusing them of evading ethical laws and leveraging their business agenda with capital (Evans, 1979; Dunning, 1981). As also understood from the information given, the correct answer is C. The arguments in the option IV “Multinationals have undue political influence over governments, exploit developing nations, and create job losses in their own home countries.”, in the option V “MNCs are also said to have a detrimental effect on the environment because their operations may encourage land development and the depletion of local resources.” and in the option VI “The introduction of multinationals into a host country’s economy may lead to the downfall of smaller, local businesses as well, since MNCs have better products and they can afford to even offer them at lower prices, as they have the financial resources to buy in bulk.” can be expressed by the one who is opposed to MNCs. The arguments in the option I “MNCs create job opportunities for many and technologically advanced goods.”, in the option II “By producing the same quality of goods at lower costs, multinationals reduce prices and increase the purchasing power of consumers worldwide.” And in the option III “Through enhanced international trade and growing interdependence, national differences would vanish and increasing economic well-being would eventually lead to world peace.” can be expressed by the advocate of MNCs, not the one who is opposed to MNCs.

It is a fact that after the end of the Cold War, the globalization of the world economy has been occurring at an extraordinarily rapid pace. Accompanying the process of globalization, however, it has appeared as a trend counter to the benign vision of economic and political harmony from more open borders. While it is true that in terms of national welfare, greater openness to competitive market forces, including competitive market forces from abroad, and greater freedom from artificial market restrains are closely associated with higher economic growth, as well as higher standards of living, there are basically five areas posing a serious challenge to economic globalization and the triumph of economic liberalism. These include high-tech trade rivalry, trade discrimination, unpredictable economic crises, North-South inequalities, and illicit market. As also understood from the information given, the correct answer is E. All of the areas in the options are posing a serious challenge to economic globalization and triumph of economic liberalism.