The International Economy, International Regimes and the Relations of Global Disparities

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Political Science 207

PART I

. The International Economy, International Regimes and the Relations of Global Disparities

The key to understanding the international political economy is the understanding of the nature of International regimes. Stephen D. Krasner defines regimes as sets of implicit or explicit principles, norms, roles and decision making processes around which actors expectations converge in a given area of international relations. In addition to Krasner, Kal Hosti proposes that regimes exist when the following three factors are present: Firstly, perceptions of community interest must be apparent (such as state interests). Secondly, a notion of a common destiny for the regime and the allocation of where the regime will fit within the international system are critical. Lastly, there must be a clear sense that self-restraint is necessary to achieve a common goal among international actors. Regimes are, however, not the same as international law or international organizations. These are simply examples of one of the elements that make up part of the regime. Regimes are more flexible than law. Law comes out of legal principles; regimes are explicitly political creations. Oran Young further defines regimes as containing the following functions: Firstly, that they are comprised of set standards that are measurable and quantifiable, for example percentage of greenhouse gas emissions allowable. Secondly, they must set obligations that require enforcement potential from non-governmental organizations (NGO's) or international governmental organizations (IGO's). Thirdly, in some instances, they must allocate resources effectively, for example fisheries regulations regimes should encompass some form of quantitative quota. Finally, regimes must provide explicit prohibitions, i.e. what not to do. For example, this may include the Nuclear Non-Proliferation Treaty, which sets out prohibitions on the atmospheric testing of nuclear bombs. Regimes are also recognized as interactions between states and between many other actors, whom all play an important role in determining state structure and behavior. These interactions result in the culmination of regimes. According to Young, regimes originate in three ways: Firstly, they result from the act of explicit bargaining. This is where states get together to negotiate an issue, such as international trade. Secondly, regimes can result from spontaneous action and less through structured negotiations. Usually a severe problem arises in which the international community must respond promptly, such as the case for hunting elephants for ivory with the aim of ensuring continued existence of the species. Finally, there is coercive leadership by a dominant state actor or hegemonic leader. This would include the regime created around the war on terrorism that is currently being advocated by George W. Bush in the USA.

Regimes can also be characterized by their effectiveness in the international system; they are recognized as either weak or strong. Strong regimes are sometimes referred to as institutionalized, meaning that they have a solid foundation. This is characterized by a clear consensus on the purpose of the regime, how it is going to happen and who will pay what to ensure its effectiveness. Centralized IGO assistance is also critical to a strong regime; they are perceived as neutral and can carry out functional jobs of analyzing data and administering decisions. Strong regimes have more explicit procedures for decision making and more effective and established dispute settling mechanisms. Alternatively, the features that characterize a weak regime include ad hoc style structures, no common interest or destiny, no common agreement on principles and tend to be caught up in establishing what the interest or destiny is. A weak regime may be based on voluntary compliance with no consequences for violations and lack evaluation and monitoring capabilities. They may be lacking in support with a minimal community of interests or lacking in major state actors such as the USA in the Kyoto Accord.

So, the question at this point is where exactly does the international political economy (IPE) fit in terms of its effectiveness as a regime? The evolution and characteristics of IPE will be further discussed with the goal of identifying its strong regime characteristics. There are a number of features that help to reveal the characteristics of the modern day IPE regime, namely financial structure, central banks, and other international monetary regimes. Firstly, there is its financial structure. The mode of production determines the monetary supply which in turn will generate the general economic direction of a country. Part of the financial structure includes monetary policy, which is how a government regulates its own economy. A government can accomplish this by restricting dollars in circulation by controlling interest rates, or it may hold high levels of reserves in banks to effectively tighten its money policy to slow growth or combat inflation. Another element of the financial structure is individual government fiscal policies. This holds the same objective as the former; however, it accomplishes this through government spending and taxation. For example, a reduction in taxes may help to boost a declining economy.

Central banks are a second characteristic of modern day IPE regimes. They act as key connectors between government, consumers, producers and the general economy. Central banks perform three key functions: they produce currency, they lend to banks and they hold government currency reserves. Central banks vary in characteristics; some are independent from government, others are not. The greater the central bank's independence from government, the less direction of government interests will be pursued. Central banks were designed to manage the economy and to ensure economic stability. Major economic crisis, such as the depression of the 1930's proved and instigated its necessity. There are, in addition, two key international institutions that deal with the regulation of monies. Firstly, the Bank for International Settlement (BIS) is the oldest financial institution in the world and is highly influential. It is located in Basil, Switzerland and was formed in the 1930's to oversee German reparations. It is recognized today as the "central bank for central banks". It provides advice to central banks regarding regulations for their own systems and offers a deposit place for central bank currency reserves. BIS representatives meet 10 times per year for consultation purposes and to solve international monetary issues as they arise. HERE 2 Finally the BIS is where head bankers meet, which is in stark contrast to where government ministries meet at International Monetary Fund (IMF) meetings, which is the second key international institution. The IMF is controlled by its 184 member-countries, each of whom appoints a representative to the Fund's Board of Governors. The Board of Governors, most of who are the finance ministers, meets once per year to discuss and arrive at consensus on major issues. The IMF is made up of highly influential economic states; the USA, Japan, Germany, France and Britain together control 40% of the negotiating power as a result of their economic predominance in the international system. The IMF was designed to promote international monetary cooperation, to facilitate the expansion and balanced growth of international trade, to promote exchange stability and the maintenance of orderly exchange arrangements among members, to assist in the establishment of a multilateral system of payments and the elimination of currency exchange restrictions, to provide temporary resources for states in need, and finally to lessen the degree of disequilibria in the international balances of payments of its members.
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Thirdly, monetary regimes are a significant characteristic and have three distinctive attributes that exemplify its importance to IPE. Firstly, there is its liquidity, which is the money circulating for product purchases. Secondly, there is confidence, meaning that there is an expectation for currency to maintain its economic value. Thirdly, there is the Triffin dilemma, which critically examines the former attributes. The dilemma suggests that a monetary regime that depends on a single currency will inevitably head for periodic crisis because confidence fluctuates widely with unstable liquidity. Essentially, the US dollar is overvalued because it used everywhere. As people ...

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