Big Summary IR

key:
…..= attention required
…..= Be mindful of
…..= complete (check is always good though)
.….= Baten tekst, end of the weeks + countries discussed by Baten in that chapter
…..= Week indication for Baten tekst
…..= Indication of additional literature or Baten tekst

Week 1: The Great Divergence

Sources:
· Beeson and Bell, “The Impact of Economic Structures on Institutions and States, in
Dunne and Reus-Smith, The Globalisation of International Society (OUP, 2017), 284-
303.
· Introduction and Chapter 1 Baten (pg. 1-41).

This week, we will look into the main questions that economic historians currently engage
with. These questions predominantly have to do with relative economic development in
different parts of the world over the past 500 years. Economic development of different parts
of the world is strongly influenced by the economic interactions between different countries
and regions. As the global economy became more intertwined, the importance of
international economic relations only increased. Thus, international relations have a large
economic component. Moreover, this week will explore how the fields of international
relations and economic history are intertwined.

After this week, students can:

· Identify possible indicators of economic development. (introduction Baten)

Indicator of wealth but what is wealth? Bhutan is the happiest country in the
world, yet the poorest. Germany has the most unhappy people and is one of the
richest countries in the world. >Wealth doesn’t say anything about happiness

Thomas Piketty
· Analysis the long-term evolution of income and wealth inequality
· The concentration of wealth
· in the 20th c.
· collection of data from 20 countries, ranging as far back as the 18 c, to undercover key
th

economic and social patterns

· one can show gdp and gdp per capita, it says nothing about how the economy and money is
divided. inequality is increasing according to Piketty
· The title of the book ‘capital’ is a nod to Marx, but he is not a Marxist. it is not about capital
but the division of wealth
· He is in France; they have a lot of data since the Napoleonic age

Why is he not a Marxist:

Marx’s problem was the market economy/ capitalism.
Piketty is not about changing the market economy, his solution is introduction of global
property tax.
The states began to rise taxes after the war, social security was introduced (labor rights) the
rich pay more taxes.

The richer getting richer is not a natural phenomenon, politics intervened.

Baten:
Ø Gross domestic product (GDP) as an indicator of productivity capacity.
· But, most money is in the hands of the rich (it says nothing about the
distribution of money in the entire society), thus limiting
Ø Height as an indicator of health and the quality of nutrition
· But, Eurocentric way of measuring as
Ø Basic numeracy as an indicator of education
· ‘Age-heaping'
Ø The polity IV index as indicator of democracy
· Institutions: the level of democracy in the state. Different criteria
measure different things. This is the idea that economic development is
connected to democracy ^^
know the pros and cons (in table)

Table 1: Baten’s indicators of economic development

Extra explanation:
Measuring Economic Development:
· GDP (measuring the great divergence: Maddison revised)
o The further you go back in time, the less accurate it will be
o Different products of importance: iPhone, etc.
o
· Height
o Indicator of health → getting a better diet (Japan is small, but has the highest life
expectancy) → not about height, but the relative, the progress
o It was very selective
· Education
o A society with a lot of rounded up numbers for their age, bc they didn’t know their age
 o Asking information about a wife to the husband, she might not know the information
· Institutions
o How people got to the leading position (democracy, etc.) → eurocentrism, China
wouldn’t score great on political institutions, but it is suited to economic
development

Heights Anthropometric history, measure people and indicate the wealth

· uses average heights as an indicator or biological standards of living. the average height is an
indication of standards in the land
· diet, disease, etc. in childhood influence adult height
· average out genetic variety
· crude, but robust method
· Level of capital per GDP is lower when height is lower too

Educational attainment
· this is a sign development
· Arguably an aspect of wealth
· Usually measured by literacy or numeracy rates. numeracy, simple math
· numeracy is easier, because of census data

Literacy was at a quite high level from early on, even though other parts are
underdeveloped.

Level of democracy
· according to Acemoglu (2001) unconstrained executive power (dictatorship) is more likely to
expropriate business (private property) and thus constrains economic growth
· Polity IV index
· China current economic growth rates seem to disprove Acemoglu’s thesis
· Less incentive to be entrepreneurial when a country is less democratized

Limits to (economic) growth

· Pollution and resources scarcity starts to impact industrial production and ten food in decades
2010-2030. You can only produce as much as the available resources allow> innovation is
growth
· BAU computer Model for “World 3”
· It didn’t happen: new resources and methods. Innovation was not taken into account.
· The carbon dioxide, (with as a result pollution) was not taken into account. >Human footprint

Where we came from

· Fertility did not rise (much)
· Mortality declines (especially among infants and children
· Soap was not as important as might have though, sewers were
· McKeown argued that the population growth since the 18 c was due to improving economic
th

conditions. i.e. better nutrition, rather than hygiene, public health measures. pp
· pp

Explain the relevance of economic history for international relations:

The relevance of economic history for international relations comes from the notion
that it enables us to study phenomena such as globalization, human rights, global
poverty, international institutions, FDI-s and so on. (mostly stuff related to the
world being more interconnected)
 Why do you need theory when you look at the past: so you can interpret history in a
certain way. When you wouldn’t have theory, as history is a big bin, you do not know
what you want to know. You need a framework to look at the world otherwise you’ll
get lost. Just reading from the archive will not bring you anywhere, one has to select
information because reading/ studying everything in history is simply impossible.
> It is all about interpretation

The combination of economic history and international relations:

How and why states interact with each other:
· International division of labour (Smith)
· Trade: comparative costs (Ricardo)
· Imperialism (Marx, Lenin)
· Foreign Direct Investments (MNC’s)
· International Portfolio Investments
· Monetary Relations
· International Institutions (OECD, World Bank, IMF, European Union, …)
· Perpetual Peace (Kant)

Economic History and International relations?

How and why states interact with each other?
§ International division of labour (Smith) Countries depend on each other. there is trade
within countries and between countries.
o Nazies were indivualistic but they needed raw materials from other
countries which is why they for example invaded Russia
§ Trade: comparative costs (Ricardo). Nations trade with each other because countries
grow or manufacture things more cheaply.
§ Imperialism (Marx, Lenin). Marx is very influential in 20 c, anthropology, economics,
th

philosophy. systemic thinking is what he introduced with capitalism.

§ Foreign Direct Investments (MNC’s) investments abroad. Close connections between
NL and Germany
§ International Portfolio Investments. Buy stocks for example
§ Monetary Relations. Nations that borrow money that have depts. Countries that give
loans
§ International Institutions (OECD, World bank, IMF, European Union). Countries that
bring other countries together
§ Perpetual Peace (Kant). It all boils down to this (hopefully)

 Recall the main controversies in economic history. So interpret

It all more or less falls under the question: why are some nations (or other entities)
rich, but others poor?

From this:
 protectionism vs free trade
 the Great Divergence debate
 views of the capitalist system (systemic ways of thinking, a la Marx)
 imperialism, colonialism and exploitation of other countries
 what role do institutions play in economic development?
 how sould we organize the economic world order?
 ..so on
The Malthusian trap
 WHy and how did we escape the Malthusian trap?
 Esther Boserup: because we can produce more food if we need to
 Tony Wrigley: fossil fuels are (were?) key to economic takeoff and enduring growth
 or is global warming the new trap?

Malthus was not right, he didn’t not think of industrialization

He thought that there would be too much people to feed.

Pomeranz: The Great Divergence. >but why did it happen WHEN and Where it happened?
>>>The underlying topic in Baten

Niall Ferguson
· Defends Western Imperialism
· Technology is a western product
· Why was Europe so successful in the 18 and 19 c.? >because the West was exploiting the rest
th th

of the world
Western domination
within the state there is competition and between states.
point 3: most countries were not democratic before the first world war.
 · Describe the main aspects of economic development in North-Western Europe.
chapter 1 p.13 Baten:

North Europe:
Intro:
North-Western Europe played a crucial role in the world economy: it was the pioneer of the
‘modern’ market economy and of ‘modern economic growth’ that resulted from it, and came
to control large parts of the world. And there were different roads to modernity.

Early growth and modernization:

Why was the North Sea region, which was a marginal part of the European economy until the
high Middle Ages, became the economic powerhouse of Europe (and arguably the world) in
the centuries before the Industrial Revolution.
· Before 1600, the Mediterranean and in particular northern Italy, were the most highly
developed part of Europe.

Why did the Dutch and English reap were the Iberians sowed?
· In the North Sea area a set of institutions had emerged that was very conductive to grow:
Ø In Spain and Portugal it was state enterprises in which private entrepreneurship played
a limited role
Ø In north it was the other way round: the state offered encouragement (via monopolies
and chartered companies) but the private sector was in charge.
Fundamental contrast. In the Middle Ages there was a clash between civil society
organized in parliaments (and in cities) and the rising power of the sovereign almost
everywhere in Europe. In the Dutch Republic and in England parliament established grip
on power or even became the supreme authority. This resulted into a different power
balance between the sovereign and civil society.
>>Little divergence between north and south<<
· Another institutional framework that had influence in the North Sea area, is the way in which
family, household and marriage was organized.
Ø North Sea area: late Middle Ages meant the rise of the European marriage pattern
(EMP), in which marriage based on consensus (the boy and girl selected each other
voluntarily) and the new couple set up their own household after marriage. Result:
high age at marriage (more than 23 years for girls), a relatively large share of singles
and the absence of strong boy preference.
§ The ‘delayed’ marriage created possibilities for increased human capital
formation for both men and women: many worked as servants or apprentices
in the households or crafts shops or others, developing their own network and
building up job experience.
§ Fertility decisions are influenced by female agency and human capital. This
pattern was a step in the switch from ‘quantity’ to ‘quality’ of off-springs.
>>gradual accumulation of huma capital though expansion of formal and
informal education.
EMP: embedded in a highly developed labour market , with employment
opportunities for both men and women. Capital markets were also highly developed,
offering credit to households at interest rates which still would be considered
reasonable. Land markets were also flexible resulting in large changes in the
distribution of agricultural holdings towards large units in both England and the
Netherlands; in England this process lead to the emergence of large estates and the
proletarianization of the farming population. Also endogenous changes occurred,
there was a rise literacy and other forms of human capital formation, capital
accumulation (made possible by the trend towards lower interest rates) and
technological change – culminating in the ‘wave of gadgets’ that resulted in the
Industrial Revolution. Attributed was that the colonial trade was concentrated north-
western Europe.

The spread of the Industrial Revolution in the 19 c.th

In the 19 c. acceleration of growth occurred almost everywhere in north-west Europe. The

th

existence of widespread proto-industrial activities was the precondition for a rapid growth of
factory-based textiles industry, often based on water power at first, but gradually coal and
steam also took over.

Alternatively:
The Vienna congress introduced a more or less stable set of institutions to regulate its
international affairs, which created the right conditions for a long period of peace only ending
in August 1914. The French Revolution introduced a streamlining of the European state
system (in particular Germany) and the introduction of highly rationalized legal system, the
Code Napoleon, as well as policies to reduce transaction costs via the abolishment of all
kinds of ‘feudal privileges’ such as international treaties to ban the many tolls that restricted
free trade. Markets became more integrated, pointing to declining transaction costs. Soon
new technologies of the Industrial revolution started to kick in: steamships and trains.

Concepts:
· Economic History
School of Thought in Economic History
 Classical economics:
o Adam Smith, David Ricardo, Thomas Malthus
 o Geography, resources,
o Free trade, but limited state role for common good
o Market economies as self-regulating
o Invisible hand: one can be trusted to pursue self-interest
 Institutional Economics:
o Thorstein Veblen
o Emphasis on the role of institutions in shaping economic behavior
 Intellectual economics:
o D.McC
o Emphasis on ideas in diving economies

o Concrete phenomena of the past. Economic history is the study of economies or economic
phenomena
o Alongside that are: methods to study history. A combination of historical methods, statistical
methods and by applying economic theory to historical situations and institutions.
o The topic includes macro and micro economic history. (micro, individuals, macro on a general
level. quite subjective depending on perspective). Including economic, business, financial
history as well as overlaps with other fields as social, demographic and labor history

Methods
o Economic history also is a perspective on history, as well as a topic within history
o economic history uses concepts, theories and methodologies from economics
o Economic history is empirical as well as theoretical
o Purely Quantitative economic history is also referred to as cliometrics
o main topic: why are some nations rich and others poor? (Adam smith, the wealth of nations)
§ Why are some nations rich and others poor? >>Small divergence and Big
Divergence<<<
Great Divergence, structure of society (capitalism), rate of industrialization
and productivity (raw materials present in the country, some nations need it to
become rich but it depends on how you use it. NL: invested the money from
the gas fields into the infrastructure, Russia: the money from oil goes to the
‘lucky’ few. But raw materials are not necessary to become a rich country).
Information is key. Enlightenment and the development of the world: ideas
create opportunities that is what the enlightenment fueled. Soil where ideas
land. The right institutions are needed to help the ideas. (In the ancient times
the steam engine was already invented but the institutions didn’t need industry
yet. The ideas did not land). When there is a shift of power institutions can be
reformed to help ideas constructively

Richness of NL derives from the longue duree in which the nation has done
quite well. Imperialism, colonialism, exploitation (robbery).

Several topics throughout this course:

Topics have different perspectives: economics, politics. They are the framework. One needs
to know what theory you use.

· International Relations
The study of international relations aims to explain behavior that occurs across the
boundaries of states, the broader relationships of which such behavior is a part,
and the institutions (private, state, nongovernmental, and intergovernmental) that
oversee those interactions.
 Interdisciplinary study of economics, history, and political science to examine
topics such as human rights, global poverty, the environment, economics,
globalization, security, global ethics, and the political environment.

Just one definition of IR. ^ The old view that the world is divided among nations. Nowadays,
many more actors play a role such as global institutions like the UN. Everything that happens
on the oceans is regulated by the UN. Otherwise, all regions in the world would have other
regulations.

Ngo’s, multinational companies and stock markets have influence in the world.

This is an interdisciplinary study, its political science, economics, international relations. Not
the traditional international relations.

International relations
how would you define that: how different nations work together, against each other
((inter-)nations and NGO’s as actors). So, actions of conflict and cooperation. And things that
order and structure these actions.

what is an actor:
· State, organization, a participant in an action or process.
· groups of various types: terrorists, armed groups
· Corporations
· institutions
· Religion
· Activist movements

They can tell us something about construction of national identity, they can structure world
politics.
International Relations:
 Study of relationships between international/ transnational actors → Study of the actors that
drive those interactions
o Actor: a participant in an action or process (corporations, institutions, states, the
Pope, activist movements, Intergovernmental organizations, even sports clubs)

Mainstream Theories Critical Theories

Realism: realpolitik statesmanship - the pursuit of security and self- Postcolonial/Decolonial

interest approach

Realism: states, assume that the international system is threatening.

realism paradigm: wars are important for security and that states will
behave by seeking alliances and go to war when another tends to be
more powerful.

Institutionalism: as realists, but international co-op may be in self- Feminist/ queer theories
interest.
Development of normative institutions - UN, EU, etc

Institutions make the international system safe, it is the study

international organs

Liberalism: the rejection of power politics, international co-op, no Marxist theories

state, but international corporations → through the perspective of
economy, the trade will reduce war

through the perspective of economy, that by exchanging goods that

people will not go out for war. (co-dependence) they work with
economic factors and the peace inducing factors of trade and economic
cooperation

Constructivism: Rejects above as rationalist Critical theory

Ideas, culture, collective values, define international actors → we
construct a reality: why do we construct France as friends, but China as
enemies?

constructivist: assumes that er walk through the world and with that
construct it. that world older is constructed. Nuclear weapons: are we in
NL scared because France has nuclear weapons? no we are afraid of
Russia. Some we construct as friends, others not.
English School: Rejects above as rationalist Not for the exam Poststructural approach
The centrality of international society, through the study of history →
the elite club approach: which States are a part of the VIP club of the
international club, who makes the rules, who joined, etc?

Elite club approach for international relations. which nations are in and
which are out of the system. We forms part of it, who joined.
the course does not adhere to any specific school of thought

New institutional Economics: “Old” institutional economics

emphasized the importance of the way in which a society is organized
(politically, culturally, etc)
§ Opposed to Neo-classical Economics
§ Coexists peacefully with Neoclassical Economics
§ Emphasizes importance of property rights, transaction
costs, governments, social norms, etc.
§ Useful for explaining different outcomes of different
countries (institutional conditions)
 (Neo-) classical economics? It is ‘classical’ in the sense that it based on
the belief that competition leads to an efficient allocation of resources,
and regulates economic activity that establishes equilibrium between
demand and supply through the operation of market forces

§ Difficulty understanding the government, culture, institutions, etc.

§ Difficulty explaining growth and relative development
§ “The Dismal Science” by Carlyle (dark and sad)
“Not a “gay” science”: a dreary, desolate, and quite abject and
distressing one.
Reference to Thomas Malthus: economics who claimed
humanity was trapped in a world where population growth
would always strain natural resources and bring widespread
misery (famine, disease, wars). >Thus a negative connotation on
the development of economics.

Carlyle was critical and Imperialism and Malthus

§ PPP= purchasing power parity

G7 is both institutionalism and English school

· Great Divergence. (chapter 1.2)

Why are some nations rich and others poor?
Great Divergence, structure of society (capitalism), rate of industrialization
and productivity (raw materials present in the country, some nations need it to
become rich but it depends on how you use it. NL: invested the money from
the gas fields into the infrastructure, Russia: the money from oil goes to the
‘lucky’ few. But raw materials are not necessary to become a rich country).
Information is key. Enlightenment and the development of the world: ideas
create opportunities that is what the enlightenment fueled. Soil where ideas
land. The right institutions are needed to help the ideas. (In the ancient times
the steam engine was already invented but the institutions didn’t need industry
 yet. The ideas did not land). When there is a shift of power institutions can be
reformed to help ideas constructively

Richness of NL derives from the longue duree in which the nation has done
quite well. Imperialism, colonialism, exploitation (robbery).

· Small Divergence Chapter 1.2

The little divergence: the reversal of fortunes between the North Sea area and
Mediterranean Europe. In which Britain and Holland began to catch up on Italy
and Spain from 1348 and then forged ahead from 1500- led by the Dutch Golden
Age, and later by the British Industrial Revolution.

Cultural Turn: not necessary for exam

 1970s + Cultural turn → Gender/queer/subaltern
o the world seems different to people of different cultures, thus the world we believe in
is simply a construction of our particular culture (Clifford Greetz)
o culture as the focus of contemporary debates; focusing on the meaning; going away
from positivism (!)
o from there also some of the critical IR theories → constructivism developed from
that in the 1980s and 1990s!

· GDP
Goes into the question how wealth is measured:
§ GDP per capita
§ Average height
§ Level of education
§ Level of democracy/ level of political freedom

Definition of GDP: “The aggregate measure of production equal to the sum of

the gross values added of all resident and institutional units engaged in
production (plus any taxes, and minus any subsidies, on products not included in
the value of their outputs”. (OECD)

Everything that is produces (products and services) is measured in currency.

GDP estimates= Gross domestic product. This is an indicator for socio-
economic prosperity. To put it briefly, it is a calculation of the added value that the
economy in a given country produces.

At the moment, GDP looks like this:

 Critique: not an accurate representation of the distribution of wealth. Bigger
countries have a bigger population. Example: the population of China is bigger
than America’s, thus China has a bigger GDP level. But nothing is said about the
distribution of the wealth. The wealth might be in hands of a small amount of
people who are filthy rich.

The Impact of Economic Structures on Institutions and States

Beeson and Bell, “The Impact of Economic Structures on Institutions and States, in Dunne
and Reus-Smith, The Globalisation of International Society (OUP, 2017), 284-303.
https://oxford-universitypressscholarship-com.eur.idm.oclc.org/view/10.1093/acprof:oso/
9780198793427.001.0001/acprof-9780198793427-chapter-15?print=pdf

The rise and the decline of the Bretton Woods-managed exchange rate regime (from the reading)
 Dominant in the post-Second World War international political economy
 The central goal: sustain the capitalist order led by the US + avoid the blunders of the
interwar period
o From the English School perspective: a self-conscious attempt to create an
international society based on institutionalized liberal norms (by a set of binding rules
and agreements)
o However, the system had consequences its makers neither saw coming or intended to
come which shaped the institutions it interacted with
 A key part of this: the creation of the system of managed exchange rates that the IMF
(International Monetary Fund) was to manage
o National currencies were loosely tied to the US dollar, which in turn could be
converted at a fixed value to gold
o The goal of IMF: manage payments crises in countries and restore currency stability
 The system emerged largely as a consequence of the American hegemonic economic and
strategic position
 The deterioration of the basis for the American hegemony in the 1960s and 1970s (the
Vietnam war, growing domestic budgetary deficits) resulted in privileging of narrow national
priorities → a highly institutionalized international order was abandoned
o Consequences to other states:
 the disassembly of actors of the international society that had functioned
together on the basis of the US leadership
 Long-term consequences: A decline in geopolitical solidarity, more focus on
national interests, the emergence of the current international financial
architecture that revolves around the actions of money markets and financial
institutions (behind the financial crisis and the EU crisis).

The international financial crisis of 2008

 In the decades after the 1970s, ‘financialization’ took place as the major financial sectors
moved in a neoliberal direction → more authority went to the hands of market players
o Consequences: expansion of the banking sector, high-volume trading, intense levels
of market competition; the ‘trader’ banks drove the bubble of the US mortgages that
caused the 2008 financial crisis
 The collapse of the US mortgage market in 2007 caused the crisis → the Bretton-Woods
managed exchange rate system, in effect, generated structural effects and crisis (which in turn
impacted the original institutional arrangements)
 After the crisis reforms were made but these did not address the key structural problem: the
scale of the financial sector & the competitive pressures within it that amplify risk-
taking
 o Although banking systems are now reliant more on wholesale funding, the structure
of the system has not been changed enough, financial systems are not safer than
before the crisis
o Financial and banking systems remain too large, too complex
o Risk-taking incentives and systemic risk remain important threats
 Countries after the crisis have still remained materially and ideationally aligned with the large
financial sector as the has not been enough questioning of the scope and scale of their
financial sectors and the structural power that they possess

Introduction Baten see page 1 -11

Chapter 1 Baten
North-Western Europe

Intro:
North-Western Europe played a crucial role in the world economy: it was the pioneer of the
‘modern’ market economy and of ‘modern economic growth’ that resulted from it, and came
to control large parts of the world. And there were different roads to modernity.

Early growth and modernization:

Why was the North Sea region, which was a marginal part of the European economy until the
high Middle Ages, became the economic powerhouse of Europe (and arguably the world) in
the centuries before the Industrial Revolution.
· Before 1600, the Mediterranean and in particular northern Italy, were the most highly
developed part of Europe.

Why did the Dutch and English reap were the Iberians sowed?
· In the North Sea area a set of institutions had emerged that was very conductive to grow:
Ø In Spain and Portugal it was state enterprises in which private entrepreneurship played
a limited role
Ø In north it was the other way round: the state offered encouragement (via monopolies
and chartered companies) but the private sector was in charge.
Fundamental contrast. In the Middle Ages there was a clash between civil society organized
in parliaments (and in cities) and the rising power of the sovereign almost everywhere in
Europe. In the Dutch Republic and in England parliament established grip on power or even
became the supreme authority. This resulted into a different power balance between the
sovereign and civil society.
>>Little divergence between north and south<<
· Another institutional framework that had influence in the North Sea area, is the way in which
family, household and marriage was organized.
Ø North Sea area: late Middle Ages meant the rise of the European marriage pattern
(EMP), in which marriage based on consensus (the boy and girl selected each other
voluntarily) and the new couple set up their own household after marriage. Result:
high age at marriage (more than 23 years for girls), a relatively large share of singles
and the absence of strong boy preference.
§ The ‘delayed’ marriage created possibilities for increased human capital
formation for both men and women: many worked as servants or apprentices
 in the households or crafts shops or others, developing their own network and
building up job experience.
§ Fertility decisions are influenced by female agency and human capital. This
pattern was a step in the switch from ‘quantity’ to ‘quality’ of off-springs.
>>gradual accumulation of huma capital though expansion of formal and
informal education.
EMP: embedded in a highly developed labour market , with employment
opportunities for both men and women. Capital markets were also highly developed,
offering credit to households at interest rates which still would be considered
reasonable. Land markets were also flexible resulting in large changes in the
distribution of agricultural holdings towards large units in both England and the
Netherlands; in England this process lead to the emergence of large estates and the
proletarianization of the farming population. Also endogenous changes occurred,
there was a rise literacy and other forms of human capital formation, capital
accumulation (made possible by the trend towards lower interest rates) and
technological change – culminating in the ‘wave of gadgets’ that resulted in the
Industrial Revolution. Attributed was that the colonial trade was concentrated north-
western Europe.

The spread of the Industrial Revolution in the 19 c.

th

In the 19 c. acceleration of growth occurred almost everywhere in north-west Europe. The

th

existence of widespread proto-industrial activities was the precondition for a rapid growth of
factory-based textiles industry, often based on water power at first, but gradually coal and
steam also took over.

Alternatively:
The Vienna congress introduced a more or less stable set of institutions to regulate its
international affairs, which created the right conditions for a long period of peace only ending
in August 1914. The French Revolution introduced a streamlining of the European state
system (in particular Germany) and the introduction of highly rationalized legal system, the
Code Napoleon, as well as policies to reduce transaction costs via the abolishment of all
kinds of ‘feudal privileges’ such as international treaties to ban the many tolls that restricted
free trade. Markets became more integrated, pointing to declining transaction costs. Soon
new technologies of the Industrial revolution started to kick in: steamships and trains.

….

Concluding:
North-Western Europe was a pioneer of the market economy and Smithian economic growth,
being the first region to break through the Malthusian ceiling, and as the leading region to
develop the industrial society that came to dominate the world economy after 1800.

>This was based on endogenous institutions

The great divergence in the world economy: long-run trends of real income

Measuring the great divergence: Maddison revised

Medieval early modern European and Asian nations were much more literate and numerate
than is often thought. A national accounting framework and careful cross-checking made it
possible to reconstruct population and GDP back to medieval period.
What came out was the that the great divergence of living standards between Europe and
Asia had late medieval and was already well under way during the early modern period,
contrary to the recent revisionist views of writers such as Kenneth Pomeranz.
However, there is regional variation between the continents.
The little divergence
§ the reversal of fortunes between the North Sea area and Mediterranean Europe. In
which Britain and Holland began to catch up on Italy and Spain from 1348 and
then forged ahead from 1500- led by the Dutch Golden Age, and later by the
British Industrial Revolution.
§ There was also a little divergence in Asia: where Japan overtook China and India.
But Japan started at a lower level of per capita income than Britain and Holland
and grew at a slower rate and continued to fall behind.

Explaining the great divergence: shocks with asymmetric effects

The economic history suggests two important shocks coinciding with the turning points
identified around 1348 and 1500.
§ The Black Death: which began in western China before spreading to Europe and reaching
England in 1348- wiped out around one-third of Europe’s population within three years, and
more than a half over the following century
§ Around 1500, new trade routes were opened up between Europe and Asia around the south of
Africa, and between Europe and the Americas.

These shocks had asymmetric effects on different economies because of four important
structural factors.
§ the type of agriculture
§ the age of first marriage for women
§ the flexibility of labor supply
§ The nature of state institutions

The effect of the Black Death

The Black Death of the mid-14 c. had different effects on different parts of Europe.
th

Classic Malthusian response: rise in incomes for those lucky enough to survive because of an
increasing in the per capita endowment of land and capital for survivors.

As the population recovered it should lead to corresponding decline in per capita incomes:
§ Happened in Italy, not in Britain or Holland, as a result of high age of marriage of females
(linked to labor market opportunities in pastoral agriculture) and people working more days
per year (industrious revolution)
§ The situation was different in Spain, which was a land-abundant frontier economy during the
Reconquest, and hence, did not see a rise in per capita incomes following the Black Death.

Population decline destroyed commercial networks and further isolated an already scarce
population, reducing specialization and the division of labour, so that Spain did not share in
the general west European increase in per capita incomes.

§ there are no signs of a positive Black Death effect in Asia, since Japan remained isolated, so
that the disease never took root, while the period was marked in China by the Mongol
interlude, which destroyed the institutional framework that had underpinned the high per
capita incomes of the Northern Song dynasty
New trade routes
The opening of new trade routes from Europe to Asia and the Americas accelerated the
process of divergence, again through their interaction with structural features of the different
economies.

Early modern Britain and Holland dominated Spain and Portugal in terms of institutional
structures, including both the ability of states to raise taxes to finance the expansion of state
capacity (needed for the effective property rights), and the control exercised by mercantile
interests over the state through parliament (needed to limit arbitrary intervention in business
affairs by rulers).
China adopted a restrictive closed-door policy towards long-distance trade after the
‘voyages to the western oceans’ that had occurred between 1405 and 1433, which had shown
China to be technologically ahead in shipbuilding.
Week 2: Capitalism, Development, and the
Dawn of the State
The very word “international” implies the existence of “nations”, which in modern parlance
usually means “countries”. This week, we will explore the interaction between states and
their economies. We will discuss aspects related to international economic relations such as
the emergence of states, the importance of taxation, the rule of law, and the rise of
mercantilism. Moreover, the mysterious “institutions” that have come to dominate debates on
economic development will be discussed. Lastly, the international relations theories Realism
and Liberalism will be introduced.

Literature:
· North, Douglas. “Institutions.” Journal of Economic Perspectives 5, no. 1 (Winter 1991):
97-112.
· Lecourse, A., "New Institutionalism: Issues and Questions" in: A. Lecourse (ed.), New
Institutionalism: Theory and Analysis (UTP, 2005), 3-26 (24 pages)
· Chapter 2 Baten (pg. 42-82).

After this week, students can:

· Explain the role of state formation and state policy in economic development.
What is capitalism, where did it begin?
What is the theory of realism

Capitalism:
owner of capital, the term appears earlier than the term capitalism.

· Private property.
§ problem when USSR collapsed because there were no regulations on private
properties (they became the oligarchs). The state has to protect private
property with laws.
· Capital accumulation.
§ To make more capital. In communism it is called speculation or exploitation.
How do you restrict it?
· (Free) wage of labor
· Free price formation
· Mostly competitive (free) markets
§ Otherwise, there will be a monopolies with fixed prices
§ If you wanted to get Marshall aid (after WW 2) than you had to open the
market. To prevent the fight between American market and European cartels.
§ Nazi Germany can be seen as a capitalist state. But the government heavily
controlled everything. Thus is it a capitalist state?
· Voluntary exchange
· Difference between ideal typical “free market economies” and actually extant “capitalism”

Capitalism morally unjust?

· Ethical questions are being asked, inequality
· Low incomes but the cost of living (housing and food) is rising
 · Proudhon: property as such was robbery. He was an anarchist and wanted to get rid of money
(swap/ exchange goods).
§ What happens when you take money: there is no fixed price. You need a general
accepted value and measurement (a general means that everybody wants, once it was
silk)
§ 90% of the population is not producing. Thus, the question is what is the value of your
service?

Utopian socialism

Marxism
· Never wrote about communism, mainly about capitalism. He wanted to improve the system
and kept on analyzing it: scientific socialism.
· Capitalism just one mode of production
· Stage theory:
§ Feudalism > (primitive) capitalism, Socialism, Communism
· Das Kapital was never meant for a blueprint of society
· “all I know is that I’m not a Marxist” (Marx)
§ always be critical, do not believe all the words that are written.
§ He merely analyzed/ studied capitalism

Many Capitalisms
§ corporate capitalism: fascism
§ Casino capitalism: speculation

Weber thesis
The Protestant Ethic and the Spirit of Capitalism. The mindset was most influential. The
theory evolves around work ethic. And in protestant ideas, people are allowed to make
profits.
· In Calvinism everyone is equal (more a bourgeois religion, ordinary people became more
important (see art from the 15 and 16 c.), whereas in the catholic religion, there was a strict
th th

hierarchy.

Deirdre McCloskey’ Bourgeois Virtues

How the virtues of the bourgeois system changed the spirit of the people/ system in the 15 th

and 16 c. >thinking in innovation, changing the order of things, etc.

th

The Dutch stock market was very important for the emergence of capitalism. (Dispute
whether it was an English or Dutch invention).
>People did not have enough money to establish multi-national companies, with stock
markets they were

Werner Sombart

Venice and commercial capitalism

· Trade routes to the Orient and the Middle east
· Trade routes across Europe
· Exchange of goods

Relative decline of Italian city states (Baten chapter 2 article 1)

· Wars can be helpful for the economy but can also be destroyed by it (war costs)
 · Institutional limitations: Venice became an oligarchy. Whereas the Netherlands was a
Republic where people had to freedom to establish companies like the VOC and make large
profits.

The Early state and the economy

15thc is the period in which states emerged: however, there was a need to gain the monopoly
on violence. According to Weber states are territories where a central authority hold the
monopoly on violence.

In NL there is a different situation: the VOC is a private company that holds similar posting
like a central government. It was state formatting, it was the beginning of the state and acted
on behalf of the state. But it was not a state owned company.
Monopoly of violence

Early state and the economy

legal capacity means that a central (state) authority is the ultimate arbiter in:
· Law making
· Conflict resolution
· Contract enforcement

You cannot have capitalism without laws and regulations.

Fiscal authority is important

Rise of the state

16 and 17 c: Shift from a personal state to an (modern) impersonal state. The States General
th th

for example which is impersonal, feudal lords were all powerful and had direct rule

Centralization
Wars are important for the rise of the state

Mercantilism
Jean-Baptiste Colbert

Essence: all aimed at increasing the wealth of the state (at the time Louis XIV). What you as
a state win, is what the other loses because there is a fixed amount of wealth. Gold and silver
are very important and is rather primitive.
>Adam Smith battles is: why would you take your neighbor’s wealth? In Mercantilist views,
you want to impoverish neighbors.

Peace of Westphalia 1648

end 80 years war and 30 years war. Latter is one of the most bloody war (total war) in North-
western Europe.

Was the beginning of formal state formation. And the beginning of the modern international
system, based on the concept of Westphalian sovereignty.

Westphalian principle/ system: one country cannot influence other country’s politics.
And every country is just as important (equality). It is a principle does not reflect reality.
>Very Eurocentric, Chinese international world view is completely different. They see the
world as the Empire of the middle, thus the world needs to pay tribute to the Empire of
China.
>In the EU, it is France and Germany who decide.

Critique: mistreating the population (Female position Afghanistan), intervention is important

for humanitarian aid for example

· Recall the differences between mercantilism see (notes baten week 8) and free trade
policies.
Basically the difference between Mercantilism and Smith and Ricardo:
Mercantilism
Jean-Baptiste Colbert

Essence: all aimed at increasing the wealth of the state (at the time Louis XIV). What you as
a state win, is what the other loses because there is a fixed amount of wealth. Gold and silver
are very important and is rather primitive.
>Adam Smith battles is: why would you take your neighbor’s wealth? In Mercantilist views,
you want to impoverish neighbors.

Ties into mercantilism: dominant during the 16 -18 c. It is a national economic

th th

policy that is aimed at accumulating monetary reserves.

§ The nation-state is the firm that makes profit on the basis of exploiting other
nations (through colonialism or exploiting neighboring countries)
§ Positive balance of trade: export more than you import (modern trade nowadays is
a balance of both).
§ Trade was a zero-sum game: if you want more, the others need to receive less.
There is no growth in the system. The system is not seen as one in which growth
exists.
§ Wealth and state power at the expense of rival states
§ War motivated colonial expansion
§ Measure was gold, not products or investments

Liberalists who believe in free trade:

Free trade: >>free trade policies

fixed exchange rate: gold standard was often introduced. it stabilized the economy. what does
fixed exchange mean: no more worry about the value of the commodity.

Standardization of measures, metric system for example

consular services: businessmen, they created a web also for the ambassy of states.
Adam Smith (1723-1790)
§ Wrote the “Wealth of nations”:
“As a rich man is likely to be a better customer to the industrious people in
his neighborhood than a poor, so is likewise a rich nation. (Trade
restrictions) by aiming at the impoverishment of all our neighbors, tend to
render that very commerce insignificant and contemptible”.
>>Rich because you live in rich nations.
§ Founding father of liberal economic thought and liberal relations theory.
Ø “.. every man becomes in some measure a merchant..”
 Ø No economic self-sufficiency
Ø Voluntary exchange increases overall wealth and well being
Ø Commercial society generates civil liberty
§ Division of labor leads to exchange
Throughout history human beings and labour were central to who we are
as people. Their identity comes from the work that they perform.
Therefore, you see in the 19 c. that humans and labouring beings are
th

increasingly being estranged from the activities they used to perform. E.g.
factory workers, they would say that this labour is alienating because of
the specific process that you have to follow. You aren’t part of the whole
production process but preform a specific sub task (specialisation and the
division of labour). In this way you have no idea what the product is going
to look like hence alienation

§ According to Smith: Government should have 3 functions:

Ø defense against invasion
Ø maintain civil order
Ø sponsor public works and institutions. >economic liberalism. Pursuit of
self-interest should be possible.
§ Invisible hand: the rise and decline of market economies through the exchange of
land, labour, and capital mainly through market, the invisible hand dictates that
decline is inevitable and inequality will continue to grow as the rich can
accumulate capital and political leverage whilst those who lack economic
resources are subject to growing inequality
§ Tries to warn against corporate conspiracies: “people the same trade selfdom meet
together, even for merriment and diversion, but the conversation ends in a
conspiracy against the public”.>>When wealth comes into only one hand or
when there is a conspiracy between corporations: the market economy will be
stranded because a monopoly position require monopoly prices.
Ø Worried about politics of special interests
Ø Role government not in allocation of resources, but ensuring commercial
environment.

David Ricardo (1772-1823):

§ Economist/ trade theory
§ Comparative advantage: specialize as a country in the product you can produce the
cheapest. >>Important for the construction of free trade, but not immediately
expected

Example:
Ø Put forwards to promote free trade
Ø Absolute advantage

§ Theory which suggests that a nation should concentrate its resources solely in
industries where it is most internationally competitive
§ Put forward to promote free trade

· Explain how institutions impact economic development.

Institutions definition:
Definition: Institutions create interdependence; thus cooperation is necessary. Probability,
you know how the states work.
 institutions (structures) and agencies. (agency= role of the person, role of politicians.
decisions made by people). Agencies are within the institutions, they do make history,
like Hitler.

Impact on economic development

Effect on economics:
David Ricardo (1772-1823):
§ Economist/ trade theory
§ Comparative advantage: specialize as a country in the product you can produce the
cheapest. >>Important for the construction of free trade, but not immediately
expected

Example:
Ø Put forwards to promote free trade
Ø Absolute advantage

§ Theory which suggests that a nation should concentrate its resources solely in
industries where it is most internationally competitive
§ Put forward to promote free trade

· Apply IR theories Realism and Liberalism to historical developments on international

economic relations.
df
· Describe the main aspects of economic development in South and Eastern Europe.
df
Concepts:
· Mercantilism
Mercantilism
Jean-Baptiste Colbert

Essence: all aimed at increasing the wealth of the state (at the time Louis XIV). What you as
a state win, is what the other loses because there is a fixed amount of wealth. Gold and silver
are very important and is rather primitive.
>Adam Smith battles is: why would you take your neighbor’s wealth? In Mercantilist views,
you want to impoverish neighbors.

· Free Trade
Trade friendly policies:
· tariffs England and France getting lower
· Trade agreement between France and England
· Fixed exchange rates
· Standardization
· Consular services
· Long-term peace (with exceptions)

>>free trade policies

fixed exchange rate: gold standard was often introduced. it stabilized the economy. what does
fixed exchange mean: no more worry about the value of the commodity.
Standardization of measures, metric system for example

consular services: businessmen, they created a web also for the ambassy of states.

· Institutions
Definition: Institutions create interdependence; thus cooperation is necessary. Probability,
you know how the states work.

institutions (structures) and agencies. (agency= role of the person, role of politicians.
decisions made by people). Agencies are within the institutions, they do make history,
like Hitler.

· Realism

Realism
Set of theories related to international relation and the role of the state.
Four main characteristics:
· Groupism, the nation
· Egoism, the human nature people are selfish
· Anarchy, no set of rules in the world that can make international order. you have to defend
your own interests
· Power politics, if you want to reach a goal you need to defend your interests and defend
yourself otherwise people will not take you seriously

The state is the most important thing

UN not important: it is Germany or US that decide

It is an ideology theory
Baten readings:
Week 2: capitalism, development, and the dawn of the state. Chapter 2 Baten

South, East and Central Europe

Tekst 1 chapter 2: “Southern, eastern and central Europe”, book by Joerg Baten
Recent studies indicate that the national incomes of Spain and Italy were higher than that of
the UK in 1500 and Italy had higher educational levels. Basic numeracy indicators are used:
the share of people who were able to report their own age correctly (in years). Southern
Europe exhibited higher levels of numeracy than the rest of Europe between 1450 and 1800.
Only after the beginning of the 16 c. was human capital higher in North-West Europe.
th

Why did Italy lead during the early modern period?

Italy in the early modern period:
Italian Renaissance was astounding in arts as well as in economic development. Economic
pioneers were in Venice and Genoa because:
· Relative military safety of Venetian lagoons
· High population density and urbanization of the Italian peninsula
· Early development of broader political participation in Venice= institutional structure in which
inspired and talented entrepreneurs had opportunities to succeed.(Acemoglu and Robinson
2012)
· Other EU countries around the same time:
established wealthy merchants excluded newcomers, generating impediments to
overall city development.
· Venice developed early versions of joint stock capital
· Merchants developed paralleled banking activity in Tuscany (Siena, Lucca, Florence and
beyond). Tuscany furthermore became a successful skill-intensive textile industry

· Recall the differences between mercantilism and free trade policies.

· Explain how institutions impact economic development.
· Apply IR theories Realism and Liberalism to historical developments on international
economic relations.
· Describe the main aspects of economic development in South and Eastern Europe.

What factors were responsible for slower Italian development?

· Decline national income and educational levels
· Military conflicts (initiated by foreign powers)
· Political fractionalization
· Limited fiscal capacity
· Dutch and English dominated inter-national/ continental trade routes, Italians were
disconnected from new international trade.
· Institutional developments that occurred in north-western Europe were more beneficial than
those in southern Europe. In Amsterdam and London, new ideas emerged and new economic
opportunities were exploited and greedy rulers would not expropriate their returns. Venice
became an aristocratic oligarchy.
Standards of living in early modern east-central Europe
East-central Europe enjoyed high standard of living late 16 c. Not due to incomes of
th

merchants and highly skilled workers but due to the relatively healthy lives of unskilled urban
workers and some farmer groups. >indicator was Height. Eastern EU males were taller than
southern and northern European counterparts

Why relatively high standard of living with low wages?

Eastern Europe had a low population density in Middle Ages. Local rulers encouraged
migration into this area, attracting new settlers by offering relatively favourable conditions.
(including skilled Jews).

The second serfdom, large landowners required increasing labor days from peasants who
were often required to postpone their own harvest, which bad weather had often already
partially destroyed. Nutrition and health (17 c.) worsened because more grain was demanded
th

and consumed outside of the country> Polish grain was exported to West EU.

Russia: During the early modern period, the principality of Moscow developed into a large
territorial state. The principality had one of the highest geographic expansion rates in the
world, but it faced permanent military challenges. The economy was structured according to
its military aims; the harvest of both government- owned land and private, inheritable land
were used to support the army. All harvest returns that exceeded the basic subsistence of
farmers were consumed by the Russian military. The country was mainly agricultural.
>height was low as well as numeracy rate

Regional development during the early 19 c. th

Substantial variety in economic development existed among regions. Development indicator:

numeracy because education is one of the three components of the HDI. Income and wealth
are the other two.

Influences on numeracy:
o Land inequality (power elites prevented the public financing of primary education, especially if
these elites were primarily involved in agriculture.
o educational policy and the willingness of the government to invest in education
o Human capital: proximity to trading posts, personal status (serfdom) and relgion

Russia: difference in regions. Estonia and Latia (then part of the empire) had higher literacy
rates which might have been influenced by the Protestant religion of the inhabitants
(Required to read the bible). Literacy was higher in the north, north-east (higher than in
central parts of Russia and Belarus> high inequality), these regions had improved legal
postion and less oppressive serfdom and superior economic situation of frontier farmers in
more recent settlements also contributed to numeracy.

Habsburg empire: western portion: high level of numeracy. lowest levels in Balkan (long
occupied by Ottoman empire> invested small share of its budget in education because they
viewed education as the responsibility of Islamic Schools or local initiatives)

Italy and Spain: south was specialized in grain production: low literacy and high land
inequality. North it was quite high
The 19 and 20 c.: overview
th th

Diffusion of industrialization to central and eastern Europe during the 19 and early 20 c.
th th

Central and Eastern industries were able to grow for many reasons
o Russia: government invested heavily in growth relevant infrastructure (railroads, bank and
imported tech) and they supported industrial development in many ways, including private
entrepreneurship.
o Central and North EU: industries developed were highly complementary to the long tradition of
substantial human capital investment in these regions, of which chemical and electro-
technical industries are the most famous. These innovations influenced many other fields.
· agricultural employment declined but total production in this sector increased
as new fertilizers were developed by the emerging chemical industry and
agricultural machinery gradually improved. But: transaction costs deceased
and a wave of imported wheat from the Russian Empire and North America
flooded Europe> implementation of agricultural tariffs. > real wages and
nutrition levels increased and stature began to increase + income distribution,
social security programs and medical progress

Service sector (page 57)

The first era of globalization, 1850-1913

First era of globalization became visible in three economic markets: labour, capital and
goods. Labour market were more important in the first era of globalization: the migration
from the Old world to the New world.
Decrease in migration cost through transatlantic passenger ships considerably
increased the number of migrants. Germany was part of the first wave group. In contrast,
southern and eastern European migration occurred in the decades preceding the First World
War.
Factors in the migration process were
· transportation
· social costs
· psychological costs
Potential migrants consider not only wages but also hurdles, such as isolation and
discrimination. And friends-and-family effect palys an important role.

The educational levels of immigrants plays a role, including the potential brain-drain effect
on the source countries. In Russia, this phenomena took place: religious persecution caused a
big share of the Jewish inhabitants to immigrate. which reduced the human capital level.

The war and interwar years

The loss of human life was unprecedented and the destruction of the war was immense. The
war also created a climate of distrust and economic disintegration.
Easter Europe experienced a unique development. After the October Revolution in
Russia, and after the introduction of Soviet-style socialism and communism, the main
industries increased heavy industrial production at the expense of consumer-oriented light
industries and agriculture. The collectivizing of agriculture resulted in harvest failures and the
death of a high share of the population (specially Ukraine in the 1930s).
Deglobalization started in the period after the First World War during the Great
Depression. Germany was among the most affected because its recovery and rationalization
of major industries was financed by unsustainable foreign lending. In. addition, war
reparation obligations reduced investment propensity and, the government implemented a
rigid austerity policy that resulted in deflation.
National socialist trade policy consisted of an autarkic policy regime that aimed to
cancel all imports, such as foodstuffs, that could be replaced with domestic substitutes or raw
materials for the consumer- oriented industries. Only imports of iron ore and similar items
were considered necessary because main aim of the government was to strengthen the
production capacity of military. (see week 6 lecture notes) Both persecuted and non-
persecuted German groups suffered from these autarkic and trade-restraining policies.
Mortality rates increased in large cities even before the war. Additionally, the stature growth
of children abruptly stagnated despite continuous growth during the half century before and
after (except the WW 1 and immediate post-WW1 periods)

! lecture week 6: Speed of the recovery from the Depression was different among different
countries: issue was monetary policy>> many countries had adopted the gold standard during
the 19 c., which guaranteed that all bank notes could be exchanged for gold in the central
th

bank of a specific country.

During the First World War, many countries left the gold standard and issued paper
money that was not guaranteed. During the post war period, a return to the gold was a policy
driven by the ideology. The gold standard provided important advantages during periods of
normal economic development in societies with a modest level of communication
technology.
>> it is argued that countries that left the gold standard early (UK 1931) faced the best
prospects for rapid recovery.
Many central and European economies suffered from the agricultural protectionism of
industrial counties during the early 1930s, which referred to stimulate their own agricultural
sectors even if it was less efficient to grow foodstuffs domestically than to import these
products.

Russia experienced rapid industrial growth. WW2 had severe effects on European economies
by redirecting world leadership to the US and, partially, to the Soviet Union. Nazi’s
destroyed a considerable amount of European infrastructure in occupied countries, plundering
resources and indirect theft via excessive taxes and ‘deliveries’ of raw materials. Physical
capital was often destroyed by the war

The golden age of the 1950s and 1960s

2 decades after 19050 were the golden age of European economic growth (central EU).
Which resulted in a shift from agriculture to industry and services in countries that had not
yet fully industrialized. All European economies became service sector economies (60%).
Free markets and ‘gastarbeiders’ from the south contributed to impressive growth. The
European Union made sure of economic integration. And capital shortage did not present
major growth obstacles as they had in previously.
Market increased in efficiency. And intermediate goods could be easily imported or
bought from domestic producers. Finally, the economic policy was Keysnesian and aimed to
reduce and smooth business cycle effect (lecture 6).

Eastern and south-eastern Europe:

There was strong growth in the USSR and Yugoslavia, where the potential for productivity
growth and structural change by transitioning from agriculture to industry persisted. (see page
64 for further reading)
Stagnation (1970s -1980s)
Oil price shock (1973) end of European growth. There was a combination of inflation and
stagnation of economic growth.

Could stagnation have been avoided? there was an increase in energy prices following a
conflict with the ME and Europe would benefit from low average costs of energy, foodstuffs
and other raw materials.

The 1970s also introduced environmental questions. The Club Rome report suggested that the
previous strategy of industrial expansion at the expense of ecological deprivation and
depletion of resources was unsustainable. However, this environmentalism was perceived as
a luxury of richer European societies in poorer countries.

Finale: the 1990s and 2000s

For Russia, the transition from Socialist to market economy system was harsh. GDP initially
decreased substantially, life expectancy decreased and crime increased.
The 1990s were characterized by deepening European political-economic intergration
but also by crisis within the European Union (starting in 2006). A common currency was
introduced that reduced the transaction costs of intra-European trade and increased mobility
significantly.

Conclusion see page 68

Tekst 2, chapter 2, “The Sputnik shock: the Pisa shock: human capital as a global growth
determinant”. Joerg Baten

Some countries follow a path of reinvesting income into education, sustaining more skill-
intensive industries. Better education, does not only increase the current human capital of the
labour force, but is also permits the development of additional innovations and adaption of
new technologies that can be imported from foreign countries.

Many advanced countries experienced shocks in their history:

· The US public suffered from the Sputnik shock during the 1950s, when the Soviet Union
demonstrated innovative capabilities in space.
· The German population experienced a ‘Pisa shock’ during the early 2000s when testing of
problem-solving abilities demonstrated that German school children did not succeed well in
maths reading and natural science test
> these shocks initiated that research projects should also consider long-term developments.

article about the development of human capital

Religion plays a role in religion.

· Jewish education required parents to teach their male children to read the Torah.
· Weberian theory suggests that there was a difference between literacy rates between Catholics
and Protestants because protestants had the freedom to read the bible.

Exogenous determinants of human capital:

1. curse of the natural resources. There is a problem with the recovery of natural resources such
as oil in a country, because apart from currency effects, inequality and changes in relative
prices, the political economy of resource rich countries might also tend towards under-
investments in human capital
 2. Similarly, land inequality can be an obstacle to human capital development. Large landowners
normally decide to invest less in the schooling of their day labourers, partly because they tried
to avoid additional taxes and partly because they wanted to keep their day labours on their
estates.
3. Some important events in history, like lost wars, were motivators for direct schooling
investments, such as in the Russian situation after the Crimean war or the French situation
after 1871
4. Malnutrition can be an important factor. A certain threshold of malnutrition, learning of
tedious math, in particular
5. demographic behaviour (the decision between quantity of the children and more education for
fewer children), the relative status of women, contact with immigrants from other countries
and a number of other factors.

Education and math skills are important determinator of economic growth

further on education see page 79!:read it if necessary

Article: “Institutions” Douglas North (97-112)

Institutions are the humanly devised constraints that structure political, economic and social
interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions,
and code of conduct), and formal rules (constitutions, laws, property rights).
· They have been devised to create order and reduce uncertainty in exchange
· They determine transaction and production costs and the probability and feasibility of
engaging in economic activity. Institutions provide the incentive structure of an economy, as
the structure evolves, it shapes the direction of economic change towards growth, stagnation,
or decline

Intention of the paper: elaborate on the role of institutions in the performance of economies
and illustrate my analysis from economic history.

Why constrain human interaction with institutions?

Transaction costs are important. There are many examples of simple exchange institutions
that permit low-cost transacting (situation. But institutions that permit low cost transacting
and producing in a world of specialization and division of labor require solving the problems
of human cooperation.

Institutions and the effectiveness of enforcement (together with the technology employed)
determine the cost of transacting. Effective institutions raise the benefits of cooperative
solutions or the costs of defection, to use game theoretic terms. Institutions reduce transaction
and production costs per exchange so that the potential gains from trade are realizable.

transaction costs: the cost in making any economic trade when taking part in the market

Institutions to capture the gains from trade

The earliest economies are thought of as local exchange within a village (or even within a
simple hunting and gathering society). Trade expansions beyond the village: the region
(perhaps as a bazaar-like economy), from those longer distances through caravans or shipping
routes (much reaching big parts of the world).
>at each stage economy involves increasing specialization and division of labor and
continuously more productive technology.
 · Village: exchange of hunting and gathering societies, specialization is rudimentary and self-
sufficient. The trade exists within a “dense” social network of informal constraints that
facilitates local exchange>> transacting costs are low
There is a continuous threat of violence from the outside
· Trade beyond the village: possibilities for conflict over the exchange grow. Size market grows,
so do transaction costs as dense social network is replaced >>more resources must be devoted
to measurement and enforcement. In absence of state regulations and contracts, religious
percepts usually impose these standards (and codes of conduct).
· Development long-distance trade: caravans or ships voyages. Entails specialization in
exchange by individuals whose lives are confined to trading and the development of trading
centers (or temporary gather places). Geographical specialization emerges as well as
occupational specialization.

Two problems with long distance trade:

§ Problem of agency, which historically was met by use of kin in long-distance. A merchant
would send a relative with cargo to negotiate. The costliness of measuring performance, the
strength of kinship ties, and the price of “defection” all determined the outcome of such
agreement.
§ Another problem consisted of contract negotiation and enforcement in alien parts of the world,
where there is no easily available way to achieve agreement and enforce contracts.
Enforcement means not only such enforcement of agreements but also protection of the goods
and services en route from pirates, brigands and so on.
>Problem of enforcement en route were met by armed forced protecting the ship or
caravan or by payment of tolls or protection money to local coercive groups
>negotiation and enforcement in alien parts of the world= development of
standardized weights and measures, units of accounts, a medium of exchange,
notaries, consuls, merchant law courts, and enclaves of foreign merchants protected
by foreign princes in return for revenue.
>Lowering information costs+ providing incentives for contract fulfillment =
transacting and engaging in long-distance trade

Expansion market= specialization producers = hierarchical producing organizations

>occupation distribution in towns and cities
>increase in proportion of labor force engaging in manufacturing and service
>shift towards urbanization

Societies need impersonal contract enforcement personal ties, voluntaristic constraints, and
ostracism is not effective anymore as more complex and impersonal forms of exchange
emerge

Example of creation capital market and interplay between institutions and technology:
capital market entails security of property, will not evolve where political rulers can
arbitrarily seize assets or alter their value. These (property) rights requires:
-a ruler who exercises forbearance and who is restraint in using coercive force
-the shackling of the ruler’s power to prevent arbitrary seizure of assets.

Growth of manufacturing requires increased fixed capital in plant and equipment,

uninterrupted production, a disciplined labor force, and a developed transport network.
Important here are property rights, a polity and a judicial system to permit low costs
contracting, flexible laws, etc.
 When institutions do not evolve:
Economic actors have an incentive to invest into improving their material status, but not in
every setting knowledge and skills will result in an institutional evolution.

North Africa and the Middle East knows Suq, where widespread and relatively impersonal
exchange and relatively high costs of transacting exists. There are no institutions devoted to
assembling and distributing market information: that is, no price quotations, production
reports, employment agencies, consumer guides, etc. System of measures is not
standardized.
Ø High measurement costs
Ø continuous effort at clientization (the development of repeat-exchange relationships with other
partners, however imperfect)
Ø intensive bargaining at every margin
What is missing in the Suq are fundamental underpinnings of institutions that would make
such voluntary organizations viable and profitable. These include effective legal structure and
court system to enforce contracts which in turn depend on the development of political
institutions that will create such a framework. In their absence there is no incentive to alter
the system.

The caravan trade relies on customs and rituals, these are clear and constant

Institutional evolution in early modern Europe

Long distance trade in Early modern Europe consisted of a complex organization that led to
the rise of the western world. Innovation that lowered transaction costs consisted of
organizational changes, instruments and specific techniques and enforcement characteristics
that lowered the costs of engaging in exchange over long distances.
These innovations occurred in three margins:
Ø those that increased the mobility of capital
Ø those that lowered information costs
Ø those that spread risk

Another important innovation was the evolution of the bill of exchange (a dated order to pay,
say 120 days after issuance, conventionally drawn by a seller against a purchaser of goods
delivered) and particularly the development of techniques and instruments that allowed for its
negotiability as well as for the development of discounting methods. (latter two in turn
depended on creation of institutions that would permit their use and the development of
centers where such events could occur.

Third innovation affecting mobility of capital arose from the problems associated with
maintaining control of agents involved in long distance trade. Traditional resolution was to
use kinship and family ties. But as the scope of merchant trading empires grew, the extension
of discretionary behavior to others than kin of the principal required the development of more
elaborate accounting procedures for monitoring the behavior of agents.

Developments in areas of information costs were the printing of prices of various

commodities, as well as the printing of manuals that provided information on weights,
measures, customs, brokerage fees, postal systems, and the complex exchange rates between
monies in Europe and the trading world. >products of the volume of international trade and
consequence of economies of scale
final innovation was transformation of uncertainty into risk.
Uncertainty= a condition wherein one cannot ascertain the probability of an event and
therefore cannot arrive at a way of insuring against such occurrence.
Risk= implies the ability to make an actual determination of the likelihood of an event and
hence insurance against such an outcome.

The increasing volume of long distance trade raised the rate of return to merchants of
devising effective mechanisms for enforcing contracts. In turn, the development of such
mechanisms lowered the costs of contracting and made trade more profitable, thereby
increasing its volume.

Contrasting stories of stability and change

The contrasting stories of stability and change go to the heart of the differences in the human
economic conditions.

Difference between Europe and the other illustrations:

traditional answer: competition between the fragmented European political units accentuated
by changing military technology which forced rulers to seek more revenue in order to
survive.
>political competition for survival

The direction and form of economic activity by individuals and organizations reflected the
opportunities thrown up y the basic institutional framework of customs, religious precepts,
and formal rues (and the effectiveness of enforcement).

Nowadays economies do evolve but nothing about that process assures economic growth. It
has commonly been the case that the incentive structure provided by the basic institutional
framework creates opportunities for the consequent organizations to evolve, but the direction
of their development had not been to promote productivity-raising activities. Rather, private
profitability has been enhanced by creating monopolies, by restricting entry and factor
mobility, and by political organizations that established property rights that redistributed
rather than increased income.

Personalistic relationships are still the key to much of the political and economic exchange.
They are the consequence of an evolving institutional framework that has produced erratic
economic growth in Latin America, but neither political nor economic stability, nor
realization of the potential of modern technology.

New Institutionalism: issues and Questions

Andre Lecours

New institutionalists have made the case for giving institutions analytical primacy. But
disagreements remain over how institutional analysis should be carried out.
Ø some suggest that it suffers from theoretical and conceptual confusion, lacks explanatory
power, or simply represents nothing new in the discipline
Old institutionalism: institutions that were marginalized in American political science during
the 1960s and 1970s because of their association with a formal-legal, style of scholarship.
Which was criticized for being descriptive, a-theoretical and parochial.

new institutionalism emerged in America whereas in EU it was rather continuity. because eu

politics did not experience the need to ‘bring back the state’ because the state had never been
abandoned.

What are institutions?

New institutionalism argues that political analysis is best conducted through a focus on
institutions or, when starting off with institutions. but then youneed to know the definition of
institutions. in old institutionalism, institutions were material structures: constitutions,
cabinets, parliaments, bureaucracies, courts, armies, etc. they were the government.

New institutionalists agree to a certain extent. but rational choice institutionalists depart from
this definition by focusing more on the ruled of the political game, which tend to be
associated with material structures but in themselves represent less tangible parameters. For
any rational choice institutionalists, the important question is not so much what institutions
are but what they represent: an equilibrium.

Socialist institutionalists (March & Olsen) define institutions in a non-materialist fashion.

They speak of beliefs, values and cognitive scripts. They see them as ‘mythic’, as they
internalize, as they are formed, elements of the cultural and normative contexts.

Historical institutionalists are closer to the view that institutions are formal structures. They
tend to view ideas in terms of norms and values whose importance are a function of the
material institutions from which they emanate, while sociological institutionalists
conceptualize them as cognitive frameworks separate from formal structures.

Issue of definition is crucial. Kathleen Thelen said that the most fundamental divide within
the new institutionalism features the materialist versus the normative or ideational views of
institutions.

The normaltive or ideational definition responds to a standard criticism of new

institutionalism: the idea that a focus on formal strucutres lead to a narrow and simplistic
perspective on politics. it can be argued that this definition is more likely than the materialist
one to produce analyses offering a multidimensional treatment of politics.

Normative or ideational defitions couter, at least partly, objections relationg to what new
institutionalism ignores. The materialist definition has the advantage of analytical clarity
because it involves an ontology where institutions and society are more clearly distinct. This
definition paints a picture in which the state and society are really close, even almost
indistinguishable, in which the ontological line, which is apparently central to the analytical
position of new institutionalism, becomes blurred.

That does not mean that other material institutions are not shaped by society, but that their
existence is not as dependent upon a society- based mechanism of institutional reproduction
as culture or ideas.

Institutions and action

The central theoretical argument of new institutionalism is that institutions shape action.

New institutionalists: theorizing in political science must take into account that action does
not occur in an institutional vacuum. In emphasizing theoretical importance of institutions,
new institutionalists reject two perspectives on the relationship between institutions and
action. Two points of critique:
§ It takes institutions to be a reflection of societal forces, whatever their exact nature (socio-
political, economic, cultural, ideological, and so on). >this view is disputed as it depicts
institutions as ‘neutral’, adjusting mechanically to changes in society so as to continually
embody the current balance of power or cultural-ideological landscape and as always being
solely at the receiving end of social change.
§ The second perspective that is criticized by new intuitions considers institutions to be purely
instruments that can readily be manipulated by actors. This position is considered inadequate
because it is seen as exaggerating the extent to which actors can use institutions to serve their
political objectives or, more generally, for purposes of problem-solving. This view
marginalizes the constraints on action which result from the very existence of institutions
according to new institutionalists. They attributively argue that the ‘societal reflection’
perspectives ignore the possibility that institutions themselves can have effects on political
outcomes.

New institutionalists put forward the idea that institutions represent an autonomous force in
politics, that their weight is felt on action and outcomes. They suggest that political analysis
should have institutions as the starting point. They use institutions as independent and key
intervening variables.
>pose question of structure and agency.

They pose three questions:

§ what are the etent of the weight of institutions on agents?
§ what is the depth of institutional influence on political processes?
§ Is the weight of institutions felt only on strategies or also on preferences?
They are approached with different approaches.
-The first emphasizes path dependency which refers to the causal relevance of preceding
stages in a temporal sequence. Path dependency: the idea that once institutions are formed,
the take on a life of their own and drive political processes. The concept involves the idea that
‘once a country or a region has started down a track, the costs of reversal are very high. There
will be other choice points, but the entrenchments of certain institutional arrangements
obstruct an easy reversal of initial choice’. >analytical approach
-another approach is the issue of how institutions affect agency is from the perspective that
institutions shape action because they offer opportunities for action and impose constraints.
This perspective was first stressed by rational choice institutionalists (was not ignored by
historical institutionalists). it suggested that the weight of institutions is felt on outcomes in
so far as that weight affects individual and collective decisions. (page 9 onderaan)

North, Douglas. “Institutions.” Journal of Economic Perspectives 5, no. 1 (Winter 1991): 97-
112.
· Lecourse, A., "New Institutionalism: Issues and Questions" in: A. Lecourse (ed.), New
Institutionalism: Theory and Analysis (UTP, 2005), 3-26 (24 pages)
Week 3: The Modern World System
This week, we will discuss global economic power relations, notably between rich “core”
countries and much poorer “peripheral” areas. To an extent, such relations were shaped by
formal subservience, guaranteed by military might, especially in the case of colonialism.
However, such formalised power relations were not always necessary. In practice,
exploitative relationships could evolve on a much looser, less conspicuous basis. We will
discuss a number of theories of economic imperialism, (neo-) Marxist theories of
international economic development, as well as slavery.

Literature:
· Spruyt, “Economies and Economic Interaction across Eurasia in the Early Modern
Period”, in Dunne and Reus-Smith, The Globalisation of International Society(OUP,
2017), 82-101.
· Engerman (Links to an external site.), Stanley and Kenneth Sokoloff (Links to an external
site.). “Colonialism, Inequality, and Long-Run Paths of Development.” NBER Working
Paper, no. 11057 (January 2005): 1-34.
· Chapter 4 Baten (pg. 121-166).
· Slaughter, Anne-Marie. "International Relations, Principle Theories." In Max Planck
Encyclopedia of Public International Law, edited by Rudiger Wolfrom, 1-7. Oxford:
Oxford University Press, 2013 (supporting literature for the assignment).

After this week, students can:

· Explain how international relations are connected to economic development and vice
versa by means of World Systems Theory.
Latin America and the consequences of colonialism in the region.
Interconnectedness in Asia before European expansion (text the globalization of
international society)

· Recall the main criticism and counter-criticism of the effects of international trade
on regional development.
 · Explain the influence of geography and institutions on economic inequality and
economic development.
-Latin America text
-Engerman
· Apply IR theory Marxism to historical developments on international economic
relations.
Marxism did not have a practical theory

· Describe the main aspects of economic development in Latin America.

Concepts:
· Core & Periphery
· States Systems
· Factor Endowments
commonly understood to be the amount of land, labor, capital and
entrepreneurship that a country possesses and can exploit for manufacturing.
Countries with a large endowment of resources tend to be more prosperous than
those with a small endowment if all other things equal.

Sara: just denotes what a country has available in terms of resources. the natural
resources the type of land capital, labor which economic factors does a country
have available, human capital. the economic factors. a neutral descriptor for the
capacity that a country has.

· Colonialism
· Influence on Latin America (see Baten reading)
· See Engerman
· Marxism
Marxism
· Never wrote about communism, mainly about capitalism. He wanted to improve the system
and kept on analyzing it: scientific socialism.
· Capitalism just one mode of production
· Stage theory:
§ Feudalism > (primitive) capitalism, Socialism, Communism
· Das Kapital was never meant for a blueprint of society
· “all I know is that I’m not a Marxist” (Marx)
§ always be critical, do not believe all the words that are written.
§ He merely analyzed/ studied capitalism

Lenin defines the practical ideas of communis

week 3: the modern world system

Baten chapter 4, Latin America

Latin America

Introduction:
One common feature in Latin American history: Iberian colonial experience, specialization in
natural resource-based products and primary export patterns. Latin America is not part of the
‘developed world’. None of the countries has attained uniformly high enough living
standards. Over the past decades the region has made large strides in bringing about notable
economic, social and political changes, which have placed the region on a development path
that has enabled it to attain middle-income status on a global scale.
The region has not been able to leave their natural resource-based production patterns
completely behind them.
· Their trade specialization has held them back from gaining access to more
technologically dynamic segments of the global market or segments in which the
growth of demand is more robust.
· The cyclical access to capital markets has also undercut its development efforts.
Limited economic success made it difficult to sustain broad-coverage welfare policies. There
is a long-standing debate about the role of institutions and about the ultimate determinants of
institutional development. The region’s social structures, the distribution of power and
wealth, the role and strength of its elites and the complex, often painful process of state-
building in combination with the legacy of colonial times and the economic and political
difficulties that the newly independent states had in positioning themselves in the world
stage- have all played a role in the success and failures of Latin America’s economy.

Latin America in the world economy: convergence and divergence in per capita GDP
No historical statistics on domestic products in Latin America from the 19 and earlier
th

centuries. Per capita GDP had fluctuated around the world average while going through three
major phases:
· decline between independence and about 1870, relative to the world leaders of the
industrialization process (the west)
· upward trend in 1870-1980
· decline since 1980s
Latin America has outpaced Africa in terms of economic growth and continues to do so

Small divergence: Western economies underwent transition from slow economic growth to a
situation in which per capita GDP was more important than population growth. The rest of
the world was slower than the pace achieved by the West, giving the rise to the ‘small
divergence’.
Great divergence: during the second period, the increase in per capita GDP of the ‘rest of the
world’ proved to be, in the long run, no more than a third of that achieved by the West: ‘great
divergence’.

Latin America’s pattern was similar to ‘the rest of the world’.

A typology for analysis of the Latin American countries

Latin American societies have been shaped by the interaction of three different societies that
came together in the Americas:
· Pre-Columbian indigenous population
· Europe
· Africa

Typology for Latin America:

· Different ways in which the transition to wage-based labor market (capitalist). Three
types of transitions:
o Indo-European regions, where indigenous and mestizo groups constitute a large
portion of the population. Located in the major centers of pre-Columbian
civilization, they became pillars of the colonial structure. In which ranching
 and farming, indigenous campesino communities and mining activities were
all combined. >also forced labor
o Transition in the Euro-African regions where the development of a slave labor-
based economy and the complex process involved in the abolition of slavery
have been pivotal factors.
o Euro-American societies were located in the temperate zones of the Southern
Cone, where European immigrants has been main factor in the growth of the
population.
· The main type of commodity, particularly export, different in mining, agriculture or
forestry. The capacity of different economies to alter and diversify their export
structure in ways that will increase value added is related to the main type of
commodity that each country produces.
There are three categories:
o Group 1: where the hacienda, the indigenous communities and mining
activities have predominated in primarily Indo-European societies.
Also an example of the central areas of the colonial economy.
o Group 2: where tropical plantations have been the predominant
economic activity in what are for the most part Afro-American
societies
o Group 3: in which Euro-American societies based on temperate-zone
agriculture or mining have predominated

The long delay: the decades after independence, 1820-1870

The previously mentioned typology is useful to describe the historical developments. During
the early 19 c. most Latin American countries gained independence from the European
th

Emperors. GDP grew slowly in contrast to exports which per capita grew stronger. But the
per capita output for the domestic market was virtually flat. There was a difference in growth
between the three groups. (see page 128-131).

Peru: group 1, large silver mining sector and a vast campesino-based sector which was
heavily concentrated in agriculture and produced very little surplus. It had local elites that
remained royal to the crown. the government took political and economic reprisal against the
royalists and the local elites who supported them. the economy suffered from the collapse of
the silver mines

Book: Economies and Economic Interaction across Eurasia in the Early Modern Period by
Spruyt. 82-101

The anarchial society: on how encounters between Europe and non-European states from the
16 c. until late 19 c. were largely based upon matters of trade, war, peace, and alliances. But
th th

the encounters themselves did not necessarily demonstrate an international society. (Hedley
Bull). The emergence of a system of juridically equivalent units, which take care of internal
sovereignty without external authority, remains an important feature of international
relations.

How did European systems displace other forms of regional and international order?
o Uniqueness in European configuration of political rule and economic interaction
 § This theory states that European order was distinct, and unique. And that in the
sphere of trade and economic interaction expanded beyond and across distinct
political hierarchies.
§ On the European continent imperial ambitions (of Carolingians and the Habsburgs)
as well as failure of imperial theocracy led to the emergence of Europe as a
pluralistic set of states. In Europe, political decentralization correlated with dense
economic exchange against a shared background of rules and norms.
§ European monarchs were constrained in their means of exploitation given that
entrepreneurs could relocate and take their businesses elsewhere. >rise capitalism
+ competition among the dynastic states = impetus mercantilist practices
§ Warfare and success in ec dev went hand in hand. first state-led, semi-capitalist
enterprises were often industries related to military tech.
> All of this is seen as Europe’s uccess
o Non-European regions were dominated by hegemonic political systems that contained and
incorporated the geographic extent of most economic activities. Hierarchy and market
concurred. Where economic activities stretched beyond frontiers, imperial ambitions soon
sought to bring these activities within the empire: China Lecture 3
§ Empires stifled development. Merchants lacked means to resist forceful taxation and
exploitation.

Situation in Europe and other regions

o There was interaction across the empires (luxury trade), other than that, no great interaction in
terms of politics or cultural cross-fertilization. Other nations actions were merely taken into
account.
> Europe expanded
o High level of material and cultural interaction across the Eurasian sphere well before the
European ‘breakout’. Economic actions have been analyzed to a greater extent than military
interactions as well as cultural and political across the Eurasian space.
o Other than that, one cannot see the non-European world as destined to ‘receive’ European
superior political and economic models. Indeed, Europe’s rule expanded over the globe. This
meant that European customs were layered on the extant practices, sometimes fully adapting,
rather than replacing local practices with European ones.
The English school: tends to favor a thick understanding of international society:
o Approach stoon in marked contrast to behavioral tenets of American political science (from
1950s) as well as to the realist view of international relations (after WW 2).
o The sociological approach is emphasized intent, collective beliefs, and shared understanding.
Whereas approach of behavioralist is material and empirical
o as opposed to realism, particularly structural realism, the sociological approach objected to
imputing state interests and the emphasis on balances of power.
>The methodological positioning opposed to behavioralist, and structural realist
views emphasized the study of norms, values, and collective deliberation and
understanding as opposed to atomistic individualism that informed the study of
international relations (US)
>this methodological position came at the price of occluding the nature of
international order beyond Europe.

(Christian) Europe constituted a society given shared values and interests, and common
recognition of such interests. Such a society was based on common language, epistemology,
religion, common ethical code, aesthetic or artistic tradition (Hull).
>this was true also in hegemonic systems like china.

The contrast of the European state system with self-contained universalist empires
Fall of the Carolingian Empire meant a diminished economic flow between West and Central
EU. The empire that once had one standardized system of coinage fragmented. During that
time only Britain managed to stay relatively centralized.
The later Middle ages (15 c.) marked a renewal of economic activity that centered
th

north western Europe (urban centres and mercantile pursuits) and the Mediterranean region
(Italian cities as key in trade network with the Orient). Europe was by no means a centralized
unit.

Wallerstein: development of the European system is the only world-economy. ‘There were
world-economies before, but they were always transformed into empired: china, Persia,
rome’.
Unger: relation of political authority and trade:
§ quasi-autarkic empire, overall coincidence of economic and political boundaries: trade
within the borders.
§ overlord-peddler deal, where trade was carried out in territories with diverse
independent authorities. (Genovese and Venetian trading companies through the
Middle East and maritime routes to South East Asia)
>Eu system adopted a variation on this model

For example the Silk road was driven by private actors, who intermittently, through indirect
contacts, purchased and sold luxury items across Eurasia. At times, political elites were
enablers (for example protection Polo family enjoyed in Mongol empire).
Ø But political elites could bring trade to a standstill. ethinic and family ties formed the core of
these private trading networks

European maritime breakout is not the sole reason of European expansion. Viewed as a
process, Eurasian globalization occurred before Columbus.
Because it would suggest a certain type of pre-eminance. however, the European
world-economy gradually incorporated the non-eu subsystems into the advancing capitalist
wrld-system that came to encompass the entire globe. > this disavows the world beyond the
EU
<interesting conclusion

Broadening our understanding of Non-European systems and societies

Mokyr: claims: political decentralization in Europe led to its surpassing of the Chinese
economy. lack of competition limited the demand for innovation. And on the production side,
innovators and entrepreneurs had not exit option to avoid ruler predation.

Moreover, if imperial hierarchy is in all cases detrimental to innovation, economic

development, and trade, then it is not clear why various non-European empires were well
ahead of the European dynasties till the early modern age, and even beyond. The idea that
Europe rose pre-eminence due to its competitive state system while, beyond Europe,
universalist empires declined due to their formal hierarchical structures, thus needs further
analysis.
>many scholars challenge this idea. there are two cases to interrogate the prevalent
narratice that European uniqueness drove its development and positioned it to expand at
the expense of the non-European systems.
Ø The Chinese tributary system seems to be a good example of a universalist empire and a
political hierarchy. And one could conlude that such an empire operated in isolation. The
English School focusses on international society and would immediately exclude the Chinese
 society. As international society means the presence of independent polities in a given
system.
§ however, a closer look at the Chinese society shows that reveals that the system is less
hierarchical, as it showed considerable fluidity in the patterns of the hierarchy as well
as economic and cultural interaction with polities beyond those commonly perceived
as withing the Chinese tribute system.

Bifurcation: Europe
Suzerain system: Azia

Chinese Tributary system in practice:

A universal empire should not be mistaken for formal imperial hierarchy. formal imperial
hierarchy, although it might have existed in aspirations and ambitions, rarely covered the
extensive networks of trade and commercial activity that flowed well beyond those polities.
The Middel-East and Asia has seen many rulers. Universalist claims justified and legitimated
their rule, even if formal control seldom corresponded with such claims.
Ø The Chinese imperial system, long-lasting, legitimated the emperor’s rule by the mandate of
heaven. But did not bring relevant economic sphere under a single political hierarchy. Its
central position within the network to the West and the East was a cultural result.
Ø The system constituted a pattern of economic exchange well beyond the Chinese imperial
frontiers, but did not constitute hierarchy in the traditional sense that it did not form a single
polity or world empire. it was based on shared cultural sphere of Confucian (mostly) norms
and pricniples. however, the there is a dispute as to which countries specifically were
incorporated in the tributary system. Korea and Japanese parcipated is questioned. As the
latter was closed from international trade

Economic interaction and trade without hegemony: south Asia, south east Asia, and the
Islamic world
South and South East Asia provide other evidence that the geographic sphere of economic
interaction did not necessarily correlate with political empire. These regions lacked both
political centre and a core civilizational polity.
Ø South East Asia shared with Europe the absence of imperial hierarchy in either formal or
cultural, tributary terms. The region was united by environment, commerce, diplomacy and
war, but diverse in its fragemented polities and cultures. Th region had a high amount of
fluidity of rule and lacked fixed territorial boundaries. the fragmented power meant that
traders could mover freely often with the encouragement of rulers who hoped to profit from
their presence, thus the political decentralization did not mean that the commerce dimished.
the interconnectedness of the polities occurred against shared ontological views of political
order, and specifically the parallelism between cosmological perspective and political order.
Ø Europe had a division of legal spheres between domestic sovereigns, and inter-state agreements
to deal with the lack of hierarchy, came to typify the regulation of interactions across borders
over the course of several centuries. The mutual respect of domestic hierarchy (sovereignty)
and agreed borders arguably fromed key constitutive rules of order in this system.

Eurasian interconnectedness before the European moment

In view of these observations, the perspective that globalization constituted a more or less
unidirectional flow, conceptualized as an expansion of the European political and economic
system, must be revised.
Ø Technological innovation in the maritime realm allowed geographical expansion for europe.
intensification of European contact with other parts of the globe became possible rather than
only land-based interaction. European forays into these regions took place on terms of extant
polities. trade occurred along coastal entrepots, where eu mingled with the long-standing
trade-networks. in these entrepots the typical arrangement left the foreign merchants to relf-
 rule. rather than displacing extant systems or challenging political rule. The Portuguese and
Dutch merchants accepted the constitutive rule of the system and paid tribute, engaging in the
required ritual performances that legitimated the cultural supremacy of the Chinese rulers. it
was only mid 19 c. when the European position changed when English officials refused to
th

awknowledge the need to tribute and ritualize submission.

Ø the monetary flows of gold and silver to the Orient provide more evidence of the decidedly
secondary status of European powers. Demand for Oriental products led to a massive outflow
of silver which the Europeans could only finance by their holdings in the Americas.
Ø (Yongjin Zhang) the Engish schoo tended to emphasize the expansion of Europe into China
and East Asia in the 19 c, omitting the complex and dyadic nature of interaction before then.
th

Europe started to participate in a much wider circulation of material and cultural practices,
well before Europe started to dominate.

conclusion:

Slaughter: International relations, principal theories

Realism: Institutionalism

(Sometimes structural realists or neorealists, opposed Ø Cooperation between nations is

to earlier classical realists) possible. Cooperation may be
International system is defined by anarchy- the rational and self-interested. Neither
absence of a central authority. States are autonomous will lower their barriers however,
of eachother, no inherent structure or society can unless they’re sue that the other
emerge or even exist to order relations between will too.
them. >bound by forcible coercion or own consent Ø

Dim view of international law and international

institutions.
 Ø Power is seen as key (and center of interest). Shares many assumptions with realism:
through power States defend themselves. Ø International system is anarchic
Ø Power can be defined in several ways: Ø States are self-interested
military, economically, diplomacy Ø Rational actors seeking to survive
while increasing their material
conditions, that uncertainty
pervades relations between
countries

Four assumptions: Ø argue that institutions- defined as a

Ø survival is principle goal of every state. thus set of rules, norms, practices and
invasion or occupation are primal threat decision-making procedures that
Ø States are rational actors. given the goal of shape expectations- can overcome
survival, states will act as best they can in the uncertainty that undermines
order to maximize their likelihood of cooperation.
continuing to exist Ø institutions increase information
Ø all states possess some military capacity, no about state behavior to rule out
state knows what its neighbors intend uncertainty (that realists see as
precisely. the world is uncertain and preventing cooperation)
dangerous. Ø States can increase efficiency. It is
Ø the Great Powers, states that are the strongest costly to negotiate on an ad hoc
basis. Central rules and focus points
can reduce transaction costs

However:
Offensive realists:
In order to ensure survival, states will seek to
maximize their power relative to others. Hegemony
is best strategy

Defensive realists:
Domination is an unwise strategy for State survival.
Hegemony may bring a state into dangerous
conflicts with peers. Emphasize balance of power,
where equal distribution of power amongst states
ensures that none will risk attacking another

‘Polarity’: distribution of power amongst the Great

Powers

Liberalism Constructivism
 Ø National characteristics of states It is more an ontology than a theory.
matters for their international It is a set of assumptions about the world and human
relations. motivation and agency.
Ø Emphasis on the unique behavior
of liberal states Counterpart is rationalism.
Ø Democratic peace (Doye). Which Variables of interest to scholars are not important:
describes the absence of war military power, trade relations, international
between liberal states, defined as institutions, or domestic preferences because they are
mature liberal democracies. objective facts about the world and have a certain social
meaning. >this meaning is constructed from a complex
and specific mix of history, ideas, norms and beliefs
which must be understood to explain state behavior.

Three assumptions: Focus on social context in which international relations

Ø individuals and private groups, not occur and emphasis on identity and belief.
states, are the fundamental actors
in world politics (non-state Accept states as self-interested, rational actors.
actors) Attentive to norms in international politics.
Ø States represent some dominant
subset of domestic society, Logic of consequences are rationally chosen to
whose interests they serve maximize the interests of a state.
Ø the configuration of these Logic of appropriateness.
preferences across the
international system determines Attitudes are constructed.
state behavior.

Concerns about the distribution of power

or the role of information are takes as
fixed constraints on the interplay socially
derived state preferences.

States are not just ‘black boxes’ thye are

configurations of individual and group
interests who then project those interests
into the international system through
particular kind of government.

Liberal theories are often difficutl for

international lawers because it has no
mechanisms to deal with the nature of
domestic preferences or regime-type

The English school: Not for the exam Critical approaches

 Does not seek to create testable hypotheses International relation theories are challenged by
about state behavior Marxists, feminists and ecological field.
They critique state’s behavior such as colonialism,
Goals are similar to those of a historian. developing country approach to international law
detailed observation and rich interpretation is
favored over general explanatory models. Most critiques share a concern with the
construction of power and state, which theories
like realism or institutionalism tend to take for
granted.

Like constructivists emphasizes the centrality

of international society and social meanings
to the study of word politics

neoliberalism: middle ground realism and liberalism. middle ground starts of with anachry no
one comes for help and states are the core. power politics. neoliberalism add game theory to
work together with other nations

Colonialism, inequality, and long-run paths of development Engerman

One of the fundamental impacts of European colonization may have been in altering the
composition of the populations in the areas colonized.
Ø Efforts of the Europeans often involved implanting ongoing communities who were greatly
advantaged over natives in terms of human capital and legal status.
Ø evidence from the colonies in the Americas suggests that it was those that began with extreme
inequality and population heterogeneity that came to exhibit persistence over time in evolving
institutions that restricted access to economic opportunities and generated lower rates of
public investment in schools and other infrastructure considered conducive to growth.

The study of colonialism is again in fashion. One of the reasons is sentimentality for a
simpler ordered world.
Deepak Lak: those nations that established empires merit praise, as their creations normally
brought about lower levels of conflict and costs of carrying out long-distance trade, as well as
promoted greater prosperity in the affected societies.
Niall Ferguson: progressive side to Britain’s oversight of her colonies, such as the
introduction of efficient civil services and rule of law, as well as the abolition of slavery.
Lance Davis and Roberti Huttenback: kind and gentle image on imperial powers. They see
Britain not nearly as aggressive or successful in extracting returns from its colonies as she
could have been. The empire generated little in the way of returns for the home country.

Studies by economists try to understand the processes and institutions of economic growth.
These scholars are attracted by the quasi-natural experiment that a small amount of European
countries established colonies. And how the colonised societies evolved. one of the things is
the question whether colonies with a British heritage (or the ones with a particular physical
environment) have realized more economic progress over time than their counterparts have?.
Thus, the history of European colonization provides scholars evidence about the evolution of
institutions over the long run.

Inequality emerges from these studies which is a great consequence to long-run

development.
Not only does inequality have an influence on societies afflicted, and many European
colonies were generated in that condition. One of the biggest impacts of inequality has been
the work that has been done in the economies of the Americas.

Why was it that for at least 250 years after the Europeans arrived to colonize the so-called
New World, most observers regarded the English, French, Dutch and Spanish settlements on
the northern part of the North American continent as relative backwaters with limited
economic prospects, and that the flows of resources to the Americas mirrored that view?
Ø simple answer: per capita incomes, especially those of European descent, were higher in at
least parts of the Caribbean and South America than they were in the colonies that were to
become the US and Canada well into the late 18 and early 19 c.
th th

Ø The real puzzle is why the colonies that were the choice of the first Europeans to settle in the
Americas, were those that fell behind- and conversely, why the societies populated by those
who came later and had to settle for areas considered less favorable have proved more
successful economically over the long run.
§ Popular explanation: credits success of the North American economies to the
superiority of English institutional heritage, or to the better fit of the Protestant beliefs
with market institutions. however, it neglects the implications of the fact that various
British colonies in the New World evolved quite distinct societies and sets of
economic institutions, despite beginning roughly the same legal and cultural
background and drawing immigrants from similar places and economic classes.
§ Specially British Guiana, Jamaica, and British Honduras’ (Belize) development stand in
stark contrast with those of the US and Canada.
Ø Alternative look (instead of the Protestantism as a key factor): the great majority of European
colonies in the New World came to be characterized because of their factor endowments by
extreme inequality in the distributions of wealth, human capital, and political influence.
Furthermore, these initial differences in inequality were of major import, because societies
that began with great inequality tended, as compared to the small number- including those
that came to make up the U.S. and Canada- that began with relative equality and homogeneity
of the population, to evolve institutions that contributed to the persistence of substantial
inequality and generally poor records of development over the long run.

Why the differences in inequality across colonies?

extreme inequality arose in the Caribbean and in Brazil because their soils and climates gave
them comparative advantage in growing sugar and other lucrative crops that were produced at
lowest cost during the 17 , 18 and 19 c on very large slave plantations. The colonies
th th th

specialized in their comparative advantage, consequently large numbers of slaves were

imported, and the populations came to be composed of
-a small elite of European descent
-a dominant share of the population (85%) was black slaves
-or (later) non-white freedmen and their descendants.

In Spanish America, inequality arose from the endowment of large populations of Native
Americans surviving the initial impact with the diseases the Europeans brought with them.
And Spanish practices (which were influenced by pre-existing Native American organization
in Mexico and Peru) of awarding claims on land, native labor, and rich mineral resources to
members of the elite.
The regions with small native populations like Argentina, Uruguay, and Costa Rica, were less
affected.

Societies of North America developed with relative equality and population homogeneity, as
there were relatively few Native Americans on the east coast where the colonies were
established, and the climates and soils favored a regime of mixed farming centred on grains
and livestock which exhibited quite limited economies of scale in production.

Australia and New Zealand were not based upon large numbers of European settlers who
became the key productive laborers, but upon small numbers who remained on the perimeter
of the country and exercised control through military power or political arrangements with
the local rulers.

In the Caribbean the settler populations were rarely directly employed in producing
commodities for sale in European markets, and their primary concern was more with control
than with the production of economic surpluses.

In Africa the early European settlements on the cost were mainly trading forts and they were
not able to exercise control over the native population.

Hawaii and Fiji were the places where sugar could be grown and the Europeans accounted for
only a small proportion of the population. Suffrage was restricted and expenditures on
education and other public serviced tended to be miniscule, contributing to the magnitude of
the inequality that existed between those of European descent and others.

Everywhere Europe settled, they did so with higher levels of wealth, human capital (literay
and technology and markets) and more political influence or power than the native residence
of the area. The native population that survived western diseases were moved to empty or
depopulated territories. In Mexico, Peru, Indonesia, India (autralia, new Zealand, Canada or
US) were relatively equal.

How did inequality affect the processes and path of development?

greater equality or homogeneity among the population led, over time, to more democratic
political institutions, more investment in public goods and infrastructure and to institutions
that offered relatively broad access to property right and economic opportunities.

In contrast, there were extreme inequality, political institutions were less democratic,
investments in public goods and infrastructure were limited, and the institutions that evolved
tended to provide highly unbalanced (favoring elites) access to property rights and economic
opportunities. >thus, difference in opportunities which effects long-term growth. because
sustaining the process of industrialization involves broad participation in the commercial
economy.

When political power or influence is concentrated among a small segment of the population,
that group is able to shape policies or institutions to its advantage. It impacts for example by
incudcing the government to make investments and provide services they favor while being
assessed for a less than proportionate share of the costs, or to define and enforce property and
other sorts of rights in ways that treat them in a preferential manner. The absence of
democracy, or a situation when one calss of the population has the capability to imose its will
by force if need be, is an extreme case of how political inequlity can lead to institutions that
favor a narrow range of the population.

the initial objects of the colonies established in the Americas, and indeed elsewhere in the
world, to generate economic returns for the respective European countries.
Week 4
The industrial revolution, which started in 18th century Britain but eventually affected the
entire world, released the majority of people from the task of producing food. It also
increased our dependence on trade, because unlike turnips and chicken, cotton garments,
iPads, and steam engines cannot be digested very well by humans. This week, we will discuss
the merits of various theories of industrialisation, the impact it had on international and
international trade, and we will explore what is today known as the “Ricardian” theory of
international trade. We will also discuss the widely misunderstood but exciting work of
Adam Smith and some other really cool early economists, and their relevance for
international relations today.

Literature:
 Chapter 3 Baten (pg. 83-120).
 Slaughter, Anne-Marie. "International Relations, Principle Theories." In Max
Planck Encyclopedia of Public International Law, edited by Rudiger Wolfrom, 1-
7. Oxford: Oxford University Press, 2013 (supporting literature for the
assignment). >>>>see week 3
Concepts:
· Division of Labour
· Division of labor leads to exchange
Throughout history human beings and labour were central to who we are
as people. Their identity comes from the work that they perform.
Therefore, you see in the 19 c. that humans and labouring beings are
th

increasingly being estranged from the activities they used to perform. E.g.
factory workers, they would say that this labour is alienating because of
the specific process that you have to follow. You aren’t part of the whole
production process but preform a specific sub task (specialisation and the
division of labour). In this way you have no idea what the product is going
to look like hence alienation

· Absolute Advantage
Ricardo’s theory
· Comparative Advantage
Ricardo’s theory
· International Society
This is a key concept from the English school (which IR is not in the exam) this concept does
not mean the nation states do not live in autarky (solistic) but that nations are in constant
interaction and that states form a international society

After this week, students can:

· Contrast Smith’s and Ricardo’s theories of international trade
lecture
Ties into mercantilism: dominant during the 16 -18 c. It is a national economic
th th

policy that is aimed at accumulating monetary reserves.

§ The nation-state is the firm that makes profit on the basis of exploiting other
nations (through colonialism or exploiting neighboring countries)
§ Positive balance of trade: export more than you import (modern trade nowadays is
a balance of both).
 § Trade was a zero-sum game: if you want more, the others need to receive less.
There is no growth in the system. The system is not seen as one in which growth
exists.
§ Wealth and state power at the expense of rival states
§ War motivated colonial expansion
§ Measure was gold, not products or investments

Adam Smith (1723-1790)

§ Wrote the “Wealth of nations”:
“As a rich man is likely to be a better customer to the industrious people in
his neighborhood than a poor, so is likewise a rich nation. (Trade
restrictions) by aiming at the impoverishment of all our neighbors, tend to
render that very commerce insignificant and contemptible”.
>>Rich because you live in rich nations.
§ Founding father of liberal economic thought and liberal relations theory.
Ø “.. every man becomes in some measure a merchant..”
Ø No economic self-sufficiency
Ø Voluntary exchange increases overall wealth and well being
Ø Commercial society generates civil liberty
§ Division of labor leads to exchange
Throughout history human beings and labour were central to who we are
as people. Their identity comes from the work that they perform.
Therefore, you see in the 19 c. that humans and labouring beings are
th

increasingly being estranged from the activities they used to perform. E.g.
factory workers, they would say that this labour is alienating because of
the specific process that you have to follow. You aren’t part of the whole
production process but preform a specific sub task (specialisation and the
division of labour). In this way you have no idea what the product is going
to look like hence alienation

§ According to Smith: Government should have 3 functions:

Ø defense against invasion
Ø maintain civil order
Ø sponsor public works and institutions. >economic liberalism. Pursuit of
self-interest should be possible.
§ Invisible hand: the rise and decline of market economies through the exchange of
land, labour, and capital mainly through market, the invisible hand dictates that
decline is inevitable and inequality will continue to grow as the rich can
accumulate capital and political leverage whilst those who lack economic
resources are subject to growing inequality
§ Tries to warn against corporate conspiracies: “people the same trade selfdom meet
together, even for merriment and diversion, but the conversation ends in a
conspiracy against the public”.>>When wealth comes into only one hand or
when there is a conspiracy between corporations: the market economy will be
stranded because a monopoly position require monopoly prices.
Ø Worried about politics of special interests
Ø Role government not in allocation of resources, but ensuring commercial
environment.

David Ricardo (1772-1823):

§ Economist/ trade theory
 § Comparative advantage: specialize as a country in the product you can produce the
cheapest. >>Important for the construction of free trade, but not immediately
expected

Example:
Ø Put forwards to promote free trade
Ø Absolute advantage

§ Theory which suggests that a nation should concentrate its resources solely in
industries where it is most internationally competitive
§ Put forward to promote free trade

§ Comparative advantage vs absolute advantage, the difference explains international

trade

§ Core concepts of (all) modern trade theory

Critique:
o Note that labor is the only thing considered necessary for production
o Note that labor is domestically perfectly mobile, but not internationally
o No capital mobility in Ricardo’s world
o Note the absence of diminishing returns

· Apply IR theory English School to historical developments on international economic

relations. not this week
· Describe the main aspects of economic development in North America.
Narrative: white settlers
Article: The United States and Canada
Pre-colonial development:
Early populations of North America first moved across a lang bridge near Alaska
into the continent thousands of years ago. People lived in relatively small
groupings of hunters and gatherers distributed throughout North America with
lifestyles strongly tied to their environments. These societies trapped animals,
produced maize and other crops. The Plains Indians in the 19 c, due to their
th

steady food availability, were amongst the tallest populations in the world.

European colonization
Migrants from Europe influenced North America the most from the 16 c. th

onwards. The migrants came from Spain, England, France and the Netherlands.
The Spaniards settled in the Aztec nation and discovered gold and silver.
Meanwhile, the English, French and Dutch explorers discovered that the areas of
Canada and the US and established colonies along the Atlantic coastline. Forcing
the Native population to move westwards because they seized native lands.

Colonial expansion: development of ‘staple’ that was demanded in the trade with
Europe and its colonies.
§ Virginia: expanded with production tobacco that was cultivated by indentured
servants before expanding the slave trade
§ South Carolina: produced rise using slave labor
§ Canada: fur, timber and fish
§ New England: tall trees were cut to construct ships
§ Pennsylvania and middle colonies: food
§ Colonial cities: specialization trading services.
> From 1700 onwards, increasing market integration of America that
slowed and interrupted whenever wars broke out.
>natural resources as an important economic drive

Income distribution was skewed heavily towards large plantation owners (who
were the wealthiest in the world between 1780 and 1860), with a sizeable group of
smaller farmers in the middle class, and a large share of slaves at the bottom. The
gains of slaveholding in the northern and middle colonies diminished over time
and their governments eventually banned slavery in the last quarter of the 1700s.

The planters invested in the education of their children and were firm in excluding
slaves from education.

Creating an independent nation with a broad range of economic freedoms

England earned hegemony over the United States in 1763 once that happened,
they tightened enforcement and sought to increase colonists’ share of the tax
burden of England’s defense of the colonies after the war. The colonists in the
area that became the US protested that they had had no say in these changes and
established temporary trade embargoes against England. After a series of clashes
with the English American colonists declared themselves independent with the
declaration of independence. The Constitution that came out of negotiations was
important for the economic development of the United States. It allowed the
government to allocate states, the right to collect tax, to engage in foreign policy
and dominion over interstate trade. People gained the right protect their property,
patents and copyrights, free speech, freedom of the press, freedom of religion, the
right to sign contracts without government interference, a representative
democracy, the right to trial by a jury of one’s peers and a series of other
individual rights too numerous to mention here.
> a lot of success was based on exploitation of slavery and the freedom of the
white population
Numerous studies show that the economic freedoms, well defined property rights,
and the rule of law are strongly and positively correlated with high levels of
income and wealth.

The economy from 1790 to 1914

In the early 1800s North America was largely agricultural with more than 80 per
cent of the population in farming. Most manufacturing centered the first stages of
transformation of raw materials with lumber and sawmills, textiles and boots and
shoes leading the way. The rich endowments contributed to the rapid economic
expansion during the 19 c. The US expanded with the purchase of the Louisiana
th

Territory in 1803, Florida in 1819, the Gadsden purchase in the 1850s and Alaska
in the 1860s. And took over other parts of the North-American continent. Ample
land available allowed the number of farmers to keep growing, but activity in
manufacturing, services, transportation and other sectors grew at a much faster
pace. Thus, the share of people working in agriculture diminished.

At this time, no more slaves were imported, but the slave population grew
nonetheless. Slave owners were around this time the richest people in the world

Population growth, 1800-1940

Growth in population came prior to the civil war came from the expansion of the
population, there were high birth rates and low death rates. From the colonial
period through the 1930s, the population growth rate slowed down. Though, more
children were born on farms because more children meant more people helping
out on the farm.
Death rates also declined. But there was a spike in death rates due to the
Spanish flue.

The Civil War brought improved diets and standards of living, improvements in
water treatment and sanitary facilities in cities also led to dramatic drops in death
rates.

Basic public health education relating to hand washing, sterilization in hospitals

and a variety of basic techniques contributed to declines in disease and morality as
the information diffused. vaccines were invented and milk was being pasteurized.
>people had access to better nutrition helped with the fact that the American and
Canadian society was quite tall. But this declined late 19 c., whilst height in
th

Europe kept on growing.

Often children from English, Irish, Welsh, Scottish, German, French and
Scandinavian immigrants became industrialists. After 1880 immigrants began
leaving the farms and unskilled labour work in southern and eastern Europe drove
to come to Norht America. Roughly one-third returned home to start farms or
businesses with the earings they accumulated. > rapid expansion industrial sector.

The immigration boom began to be restricted. Chinese and Japanese immigrants

were excluded in 1882 and 1907. And the First World war also slowed down
immigration. Nowadays, immigration is based on legal and illegal Latin
Americans.
Long run per capita income growth
But not all measures of welfare show signs of progress:
§ Income per capita grew from 0.5 to 1 per cent per year and between 1840 and 1860
around 1.6 per cent. But the average height for people between 1820 and 1860
fell during the ante-bellum period.
> Difference in the two might indicate spread of disease in urban areas.
Disease often influences height for children when they grow up.

From 1840 to 1860 there has been a long-run average growth rate of 1.6 per cent,
despite several downturns. It implies a doubling of income per capita roughly
every 40 years in the US. The US kept growing despite wars that could potentially
threaten the growth.

National measure of agricultural productivity per acre did not grow very fast
between 1800 and 1930, but this national aggregate figure hides an enormous
amount of activity. A variety of crops was produced by trial and error with
mixture of Mexican seeds which raised the amount of cotton bolls that could be
picked per day. Similar trials and errors helped a wheat boom. Cross-breading
expanded the amount of leather, meat and wool from the animals. And there were
improvements in the tools applied to agricultural work which helped the
development of new agricultural implements industries in the Midwest. Industry
grew as well which had a lot of labor forces to draw from.

Between 1865 and 1914, the US and Canada became increasingly interconnected
with the world economy. But globalization came to an halt due to the First world
(as it caused enormous debt) war. And the economy retracted sharply over the
next thirty years during the Great Depression. Summer 1929 welcomed a
recession and the winter it welcomed a stock market crash. Major banking crisis’s
followed.

Destruction of wars
The second world war did not hit America as hard as the civil war, as most of it
was fought outside of America. And both the US and Canada entered the SWW
relatively late. But damage was done is seen in the spikes between 1940 and 1950
in the ratios of real per capita GDP in the North American countries.

Before entering the war the US federal government shifted to war oriented
production, during the second world war, nearly 40 % of the economy was
devoted to war production. Rationing and price control were active.

Postwar era
After the war large resources provided a significant share of the defenses for the
non- Communist world. But this construction was disarmed after the fall of the
USSR. But the initial drive after this was to protect the world against communism.
After the Cold War, the US invested into helping to put the Middle-East conflict
to a rest.

Productivity advanced after the wars

The domestic economy changed during the years after the war. in the 50s and 70s
there was a major growth in productivity and from the 1980s and mid-2000s.
 Technology developed. A great deal of productivity advances have come from the
development of human capital. There was a large focus on education the society.
>thus, a great deal of the development has to do with the development of human
capital.

The business cycle

Us economy follows a path of long-term growth in per capita income with
occasional downturns and some serious drops. Problems in the financial sector
were often associated with some of these downturns, but the direction of causation
was as often from the real sector to the financial sector as it was the other way
round. Both the US and Canada have a strong banking and financial system,
which became apparent when the banks failed. All the banks are closely tied
stronger banks often stabilize the smaller ones to maintain stability.

In the Reemployment Act of 1946 the US federal government took responsibility

for ensuring economic growth, low unemployment and low inflation. Real GDP
per capita grew between 1947 and 1969 up to about 2.6 per cent per year.
Another long expansion in American history occurred in the 1960s . Economists
had become confident that they could smooth the business cycle mostly with
Keynesian fiscal policy, particularly after the Kennedy tax cut in the early 1960s
appeared to stimulate the economy.

In the 1970s, high unemployment and high inflation resulted in stagnation. Nixon
tried to stop the inflation with wage and price controls, but these at best slightly
delayed the rise in inflation.

· Explain the implications of Smith’s theory of international trade for IR. (will be
discussed in the tutorial)

Week 5:
Week 5: The First Wave of Globalization
Literature:
· Krasner, Stephen. “State Power and the Structure of International Trade.” World Politics
28, no. 3 (1976): 317-47.
· DeLong, Brad. “Economics 115: The Trilemma.” Available at:
http://delong.typepad.com/files/trilemma.pdf.
· Chapter 7 and 10 Baten (pg. 208-248 and pg. 316-352).

During the 19th century, broadly speaking, international trade operated almost unfettered by
legislation, albeit within an imperialist global economic order. Together with spectacular
improvements in transportation and communication technologies, this led to the “first wave”
of globalisation. We will look at the ways in which globalisation advanced in this period and
the consequences it had for the global order and international relations. We will also use this
week to discuss national accounts, exchange rates, gold (and silver) standards and monetary
aspects of international trade. Lastly, the international relations theory neo-institutional
liberalism will be introduced.

After this week, students can:

· Explain how and to what extent international power relations have reflected international
trade throughout history.

Trade friendly policies:

· tariffs England and France getting lower
· Trade agreement between France and England
· Fixed exchange rates
· Standardization
· Consular services
· Long-term peace (with exceptions)

>>free trade policies

fixed exchange rate: gold standard was often introduced. it stabilized the economy. what does
fixed exchange mean: no more worry about the value of the commodity.

Standardization of measures, metric system for example

consular services: businessmen, they created a web also for the ambassy of states.

Cobden- Chavalier Act 1860:

· In parliamentary session of 1859, Cobden’s friend and political ally John Bright asked why
instead of spending money on armaments against possible French invasion, did not the
government attempt to persuade the French Emperor to trade freely with Britain
· Chavalier urged Cobden to meet the French Emperor to try and persuade him of the benefits of
Free trade
the idea: that why spending money on military? why not invest in trade agreement and have
free trade together.

Napoleon III Emperor 1852-1870

‘I am charmed and flattered at the idea of performing a similar work in my country: but it is
very difficult in France to make reforms: we make revolutions in France, not reforms’.
France: path dependency, difficult to reform.

Modern Imperialism
· European powers occupy and exploit most Africa, South- and Southeast Asia
· Intra-empire trading important
· Economic consequences for colonized countries controversial
· Exploitation but also spread of Western Institutions
after 1870 the world was divided between the big European nations.
>south America: wsa not directly occupied but the US saw it as the backyard to be exploited
for raw materials and food.

Us imperial power? have had the ideology that they were special: manifest destiny. thus not
imperialistic. however, you can argue that the US that the extension of the several state (the
institution of the US) was imperialistic as It constantly tried to increase land mass. however,
they did not do this on another continent, such as Africa.

Why colonies still behind? the institutions in the regions collapsed after the second world
war.

Scramble of Africa
· Rapid colonization of much of Africa
· Economic arguments often used at the time
· National prestige also played a role
· suppression of slavery/ enslavement/ slave trade
· Congo Free state, extremely violent case

don’t underestimate the nationalistic argumentm, to persue poliicies

Congo Free State (1885-1908)

· Personal rule of King Leopold II of the Belgians
· Forces labor policies used to collect natural rubber for export
· Atrocities were perpetrated (genocide)
· Many diseases as a result of the colonization
· 1-15 million people died (debate)

why the west effective in Africa: maxim gun, military

· Recall the monetary trilemma (a.k.a. impossible trinity) of international trade, the Gold
Standard and its implications for international economic relations and national policies.

· Apply IR theories Constructivism and Neo-institutional Liberalism to historical

developments on international economic relations.

· Describe the main aspects of economic development in the Middle East and Northern
Africa.

Concepts:
· Waves of globalization

Definition:
What is special about this definition? not just a state-centric approach, different actors
important in this definition. And it fits with the liberal international relation theory.

Now: second wave of globalization

The First Wave of globalization
· Is it even the first wave?
· Second half 19 c.
th

· increased global economic interaction

· Transport revolution
· economies of scale
· increased demand
· increase of interdependence
· relatively pro-trade policies in many countries
· free trade spreads across Europe
· Imperialism

Why was this time^ the first wave of globalization? you can say that in the 16 c globalization
th

started, or even the in the Roman Empire as they thought that they covered the whole world.
It depends on the time and from where you are.

Difference between the 19 c and earlier globalizations? now it was really the entire globe,
th

they knew the globe was round. And the industrialization increased the volume of trade,
investement, travel of people and interconnectedness. there was a transport, information,
technology revolutions. Increased interdependence on regions and countries.

There was free trade, protectionism stopped. And the time of empirialism.

Why did the increasing globalization take place?

Increasing role of technology, institutions (structures) and agencies. (agency= role of the
person, role of politicians. decisions made by people). Agencies are within the institutions,
they do make history, like Hitler.

The transport revolution:

· shipping (iron steel ships)
· roads
· trains
· transportation becomes cheaper, faster
· more products can be moved
· More people can be moved
railways were important for the industrial revolution and for the west a way to expand the
continent. By railway they explored the US and expanded to the West.

Interestingly at the moment: transportation costs are going up. trend towards diminishing
trade.

communication revolution:
communication is important, this was established by the telegraph. this was the internet of the
19 c. Instead of writing letters, telegraphs were way faster.
th

Increased global economic interaction:

cotton and other textiles was behind the globalization of the economy.

Increased demand
· Strong rise in population in Europe and North America
· Increasing incomes in Europe and North America
 · Diversification of states and fashions
· Specializations and intensification of production
· Rise of productivity in agriculture.
the rise of population means that more money is spent. productivity in agriculture (specially
in US and Russia) are rising. Europe becomes dependent on Russian and US for grain. This
created a dependency.
· Gold Standard

Why does money exist?

· Medium of exchange
· store of value
· measure of value
· standard of deferred payment (to value a debt)
money plays a gib role in the age of globalization. why do we have it?
-means of exchange: we need it because money becomes important. when exploiting
labor you need money because people do not only need food, but also bread and a
house. You need something everyone wants to have. you can use money to measure
the value of things. and gives a standard of payment, lend the money etc.

-gold as money was popular because it does not wear out, it is durable, big value, everyone
wants to have it. But you could take something else.

The history of money

· pre-money: barter, often in specific objects (shelles, silk, salt)
· Use of precious metals
· Symbolic representations of money (iron money in Sparta)
· Paper money in china, copper plates in Sweden
· problems of bimetallism and trimetalism
· Chinese copper coins
more developed societies used precious metals, but it depends on the development rate of the
region.

bimetallism: silver and gold. problem if you use it at the same time: relation of the value
between the different metals. solve the issue: making a fixed price for that you need
institutions to implement it.

Further history of money:

· early banknotes fisrt issued by Stockholm’s Banco (sb) 1661
· notes represent a set value in silver
· SB bankrupt in 1664
· Goldsmiths (London) made banknotes payable in gold to the bearer of the note
· tradeable claim
· fractional reserve banking
· Fiat money: money not convertible
· issued by states or state-like entities
· nominal value (much) greater than intrinsic value
· often introduced during crisis
· since the end of Bretton Woods system in 1971 standard around the world

possible problem: you can become a lender of money, more notes than gold. but people that
distrust this system and collect all the gold then you’re bankrupt. trust is the basis of the
whole system.
what is the trust we have in the banknote? that we can buy things with it and that you can buy
the same amount of goods with the money you have next year (however, inflation).
But no alternative to money? art, stocks

The role of the state and national banks

· Personal treasuries of (for example) kings replaced with state treasuries
· Rise of national currencies

· Rise of central banks after 1797

· Guarantee the currency
· issues banknotes (monopoly)
· set interest rates
· the bank of banks
· the lender of last resort
· maintain fixed or predictable exchange rates
· monetary policy

banks guarantee the money

thye ciculate the money and the interest rates

monetary policy: you can create the money in state. the amount of momey. and you want
stabilization of the money no inflation of deflation. in economic theory: more money in the
system to create a bigger economy. lower interest rates people spend more money to
stimulate the economy.

The Gold standard

· Currencies convertible to gold (Britain 1821, US & Germany 1873)
· issued by national banks
· Uniform, national currencies
· the rise of monetary policy and economic
· compare free-foating and ‘pegged’ rates
the gold standard internally is favorable: fixed currency, insight trade favarbale (for example
in empire), when other countries introduce it> fixed exchange rate with other countries.
Advantage fixed exchange rate: stimulates trade.

Further on gold standard:

· The gold standard is a monetary system where a country’s currency or paper money has 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 is used to determine the value of the currency
paper money earlier: could be changed for a certain amount of gold

Bretton Woods, 1944-1971

· Bretton Woods system set up in 1944
· International currencies were linked to the US dollar which was linked to gold (US owned 2/3
of all gold in the world
· between 1944 and 1971 US printed many dollars which were used for international trade
· 1971, during the Vietnam War, Nixon terminated convertibility of the US dollar to gold
· Many fixed currencies became free floating, with the exception of the European Union, which
created the ECU
first world war meant the end of the first globalization wave and the gold standard.
the war made it difficult to keep up the gold system because a lot of money had to be lend.

floating exchange rate/ consequence: the prices changes from day to day= bad for trade.
Bretton woods: all currencies would be linked to the dollar. link certain amount of gold to a
certain amount of dollars and other currencies were linked to the dollars. us started printing
dollars and spend a lot of money in the war (Vietnam).

France and NL had a lot of dollars and wanted to see gold: and Nixon could not do that.
Europe created its own system within europe. europe was quite critical of theus which is why
they wanted their money back.

Monetary policy
· Monetary policy dominated the news but..
“productivity isn’t everything, but in the long run it is almost everything. A country’s
ability to improve its standard of living over time depends almost entirely on its
ability to raise its output per worker”

>krugman
different views on function of money in society.

MxV=PxT
· M (money) = total amount of money
· V (velocity)= how often money moves from on owner to the next
· P (Price) = the average price level
· T (Trade)= trade volume/ transactions= the amount of transactions or trade volume

Fisher equiation.
if you increase the money and v is the same than you need more production or prices must

Balance of payments
· Balance of payments is the sum total of transactions of a country with the outside world
· It can be negative (money out) or positice (money in)
· With (perfectly) fixed exchange rates the Central Bank needs to intervene
· With perfectly free floating exchange rates automatically balance of payments because the
currency reacts
· Great advantage of fixed exchange rates is that it diminishes risk and stimulates trade
go up. >> explanation of inflation
not budget of government. balance of trade with other countries
you need a balance: otherwise inflation or deflation
in total this should be 0 thus balance
Interest rates
· Interest is traditionally frowned upon in Abrahamic religions
· CB sets a national interest rate
· That does not mean YOU can always borrow at that rate!
· Low interest rates (like now) used to stimulate, but tricky
· Risk of bubbles
price of money/ capital

Further interest rates:

· Interest rates affect the money suppl (especially nowadays)
· high interest rates, lower money supply, deflation
· low interest rates, bigger money supply inflation
· government borrowing drives up interest rates, higher demand for money

government borrowing money drives the price upward.

monetary policy effective?

Negative interest rate policy (NIRP)

· Is an unconventional monetary policy tool employed by a central bank whereby nominal target
interst rates are set with a negative value, below the theoretical lower bound of zero percent
· A NIRP is a relatively new development (since the 1990s) in monetary policy ued to mitigate a
financial crisis
· De Facto makes a monetary policy impossible.
most states have a policy of low interest rates. governments have less means to influence the
money amount. thus were stimulating to borrow money, argument is money is for free.
 · Monetary Trilemma
The Trilemma: The fact that countries cannot have more than two of the
following three things:
1) A fixed exchange rate
2) An open capital market (no capital controls)
3) An independent monetary policy

· Constructivism
· Neo-Institutional Liberalism

Keohane^
accept many of realist assumptions: anarchy, self-interest. but Keohane mixed economic theories
(game theory) to explain why institutions matter and are advantages for states.

(second point is game theory)

also transacton cost theory: negotiation and collaborating institutions lower transaction costs. explain
collaboration between states via isntitutons and via transactions cost theory

institutions are not just concrete institutions but also practices and rules. (Sinterklaas too,
nobody not written down how to celebrate but everyone knows, G7 too).
Baten
chapter 7 en 10
Week 5: The first wave of Globalization
Chapter 7 Baten: article: middle east, north Africa and central asia

medieval and early modern period

During the medieval period, the technology of the Middle East was superior to that of Europe
and knowledge was flowing from the former to the latter.
>medicinal knowledge, kept in libraries and developed.
>Urbanization rate was higher than in Europe in 1100, in the period 15000-1700 Europe
converging and took over in 1800.

Quantitative evidence on the economic history of the ME is limited> conclusion was decline,
but no certain evidence of that.

The trade routes between medieval Europe and Asia that passed through the Middle East
shifted, the ME earned monopoly profits from the trade with Asia and Europe.
In the early modern period the monopoly profits flowed into European pockets. And the ME
started trading Yemenite coffee. >>however shift in trade only small affect on the ME as
trade was done by small portion of society.

Demographic shock: medieval plague and Mongol invasion hit hard ads economies in ME
needed a mass of population density to keep up the irrigation system. >> affect on food
supply

Craftsmanship in the cities was just as high as in southern Europe, and similar welfare level.

ME does not participate in European human capital revolution. >literacy 10% in 16 c., 50%
th

early 19 c.
th

Whilst numeracy grew in Europe to 50-90%.

Limitations to the ‘rule of law’ at the beginning of the nineteenth century

· Complicated institutional structure
· Missing ‘rule of law’
· Taxation capacity was low
· Rulers were exploitative

Regions benefitted from low levels of the rule of law. >Maghreb pirates (Algerian and
Tunisian). Ships that could not pay a certain fee would be captured and the crew sold on slave
markets if no ransom was paid.

Egypt and Mesopotamia: irrigation economy thus property rights important because it
depends on institutional settings. But the rights were not always defined.
>Land rights were complicated, the state owned most of the land except for some gardens,
orchards and the real estates on which the houses and the villages stood. But families tricked
the legal system by acting like they owned the property
Some regions were nomadic, difficult to implement taxes and a central government

Urban craftsmen and transport infrastructure around 1800

Europe: proto-industrial production in the countryside
ME: industrial production in cities as well as suqs. Textile was important, food-processing,
furniture and specialized industries.
>slower technological progress than Europe but for example Turkish armament producers
and shipbuilders could produce at the similar level as EU.

Another urban function: caravan trade complemented by coastal and river-based trade. the
main caravan routes within the Ottoman Empire connected Syria and Mesopotamia.

The system of production and taxation did not encourage development; nor were land
resources completely used. Alongside complicated property rights and little economic
dynamism, but there were exceptions.

Reform period: the early 19 c

th

19 c the situation in ME changed into three development paths:

th

1) Tanzimat reforms in the Ottoman core changed law, administration, military (servie
years max 5 years) and economic situation. Plus citizen equality, thus having other
religions gave both benefits as well as disadvantages. in theory due to the law, all
religions were treated similarly.
>tax farming was abolished. rich tribal leader, merchant or feudal lord could obtain
the right to collect taxes after paying a fixed amount to the government. >overtaxing
+conflict of inequality and tax burden.
>opening Ottoman economy for imports, trade with Europe intensiefied because it
was better as producing.
2) Egypt: had always been ruled by person born abroad or with parents outside country>
Mohammed Ali Pasha made reforms: strong army, education (to provide the army
educated leaders and skills for modern industry, trade and administrative position).
>Textile industry flourished
>mandatory military service > military state that participated in many wars for more
materials to Egyptian industry. The forced development f military power, agriculture
and new industries has similarities to Soviet strategies (but without communism).
>Successors of Mohammed Ali adopted different strategies. His son encouraged
sience and agriculture, and banned slavery. Cotton production flourished when cotton
production dropped in the US. But due to diseases, wars and floods egypts economy
weakened. and the English and French colonial powers started to increase
interventionist policies until England transformed Egypt into a protectorate in 1882,
3) Colonization took place in Asia, the Caucasus and Algera; Russia began a territorial
expansion. The Tsar considered the northen steppe to be part of the Russian Empire
but the region was only administrated n the early 19 c. Russian forts were built to
th

protect the regions and control the territory. Russians settled there and were provided
with land, reducing the area available for the nomadic tribes in the Kazakh steppe and
many were forced to adopt to a sedentary lifestyle. In those regions large % of people
were immigrant.
>Kazakhs at the time had a higher numeracy number than the Russians had. However,
Russia went through a human capital revolution during the 19 c. And the Kazakhs
th

adopted by whating the contact learning the Russians did. The Russians also invaded
the Khanates of Kokand, Bukhara and Shiva later it also invaded the northern steppe.
 Also to prevent British expansion. But the spread of Russian influence caused the
growth of illiteracy.

Thus three types of fundamental change:

-Tanzimat reforms that opened many economies to European competition
-the infant-industry strategy of Mohammed Ali in Egypt
-Direct colonization which led to active decline in human capital in the Silk Road region and
stagnation on a high level in Algeria.

Why did the Middle East deindustrialize during the 19 c.?

th

During the 18 c. the Ottoman Empire was completely self-sufficient in textile production,
th

which represented a large share of traded industrial goods. There was a small amount of
exports of carpets, silk and textiles.

The de-industrialization was trade-based:

· Imported British textiles during the 19 c. outperformed many local producers
th

· Improving terms of trade of cash crops. >Raw cotton prices increased substantially this
tempted the ME to specialize production area.

But real incomes were growing during the 19 c. due to the cash-crop
th

Other institutional factors that might have weakened the ME economies, leaving them less
competitive. Institutions of Islamic law that were appropriate for early periods tended to
become handicaps for growth during the 19 c.th

· Inheritance laws because they did not allow capital accumulation

· the lack of legal framework for capital firms
· the religious trusts called waqs, which locked capital resources into relatively
inflexible institutions. this is an example of an institution that limits capital
development by constraining credit. >>Christian religious leaders developed doctrines
that implied separated religious and governmental power. In contrast, Muslim
religion, political power was weak and the first Caliphs gained their legitimization
from being relatives of Mohammed. The leaders further legitimized their power by
obeying religious rules strictly.
· Another limiting factor for industrial competitiveness might have been the interaction
between economic segregation and human capital development. Minorities were
predetermined for occupations in finance and trade therefore, talented individuals
might have had fewer incentives to develop trade-related skills. >>limited human
capital. Specially the immigrants were active in the trade sector.

Living standards
Gross domestic product developed, but slowly. It fell behind on Europe and the US.
However, in the Middel East, countries enjoyed on average a favourable nutrition compared
to Europe. However, in 1880 the average height decreased and European human stature
began to exceed it.There was also as strong difference between regions; these regional
differences shed light on the explanation of the height trend. In deserts people were taller due
to a smaller population density and people there could benefit formt he meat and milk of the
stock. Shortest population was at the coastal areas, which are now the richtest regions in the
world
The middle east in the 20 c.
th

before ww 1 all powerful positions in the ME ec had be taken by Europeans or minorties. The
two world wars devastaded Europe and allowed the ME to abolish privilages (such as
immunities for European Mercahnts)

Turkey introduced reforms in the first half of the 20 c. many reforms initiated in different
th

fields such as politics, economics and culture. it abolished the sultanate and afterwards the
caliphate system in the country and converting the republic of Turkey into a secular state. The
secularity of the state led Turkey to a clear increase in numeracy leverls in different Turkish
regions. New schools were built and religious education was replaced by national education.

Before WW 1 industries were growing in Egypt and Turkey. Turkey started a 5 year plan
during the 30s making it clear that the state would play a strong role in the attempt to
deindustrialization. All ME economies lacked entrepeneurship. And socialist ideas appealed
in parts of the ME.

The Sykes-Picot Agreement in 1916 divided the ME between England and France. Palestine
became English and they wanted to create a ‘national home’ for jews, hence the influx of
jewish entrepeneurs and economic prosperity.

Discovery of oil was important ……...

Sub-Saharan Africa
interpretations
Explanations for Afrika’s historic (if relative) poverty can be grouped in different ways:
External versus internal and institutional versus resources.

External explanations (which are institutional in the sense of focusing on the way resources
are controlled, organized and exploited):
§ dependency theory: the view that the development of the West was simultaneously- and
by the same process- the underdevelopment of the rest.
§ rational-choice (counterpart of dependency): was provided by a group of growth
economists in the 2000s.

Both interpretations are ultra-Eurocentric, attributing Africa’s fate to European decisions:

during the external slave trades, then under colonial rule.
And crucially, both interpretations agree that in Africa the process of establishing capitalist
institutions, such as private (opposed to communal and public) property rights, has not gone
far enough to promote market-based economic development. They argue that colonial
governments, despite representing capitalist states in Europe, were content to draw Africa
deeper into the world market, without establishing the institutions needed for self-sustaining
economic development.

Internal explanation:
§ gives primacy to institutions as determinants of economic outcomes. It sees indigenous
institutions and organizations, from the nature of the state in Africa to such cultural
 features as extended kinship systems and ‘communal’ land tenure, as constraints on
economic growth. >is reiterated in ‘modernization theory’.
· Bates: examined how far the private interests of rulers align with those
of the population as a whole, distinguishing the conditions under which
rulers will have an incentive to facilitate economic growth from those
in which they stand to gain by predation, rewarding themselves and
their supporters at the expense of general prosperity. > analysis of
aspects of precolonial, colonial and especially postcolonial political
economy, insisting that it has often been rational- for rulers- to
maintain policies obstructive to economic growth and public welfare.
§ analysis of natural and human resources (or factor of production). Factor endowment
framework with four main propositions:
1) most of sub-Saharan Africa, until well into the 20 c., was land-
th

abundant and labor scarce. With the technology of the time concerned,
the expansion of output was constrained by the supply of labor, rather
than of cultivable land and other natural resources.
2) Most of this relative plentiful land resistant to intensive methods of
agriculture: soils were thin and therefore easily eroded; animal
diseases such as trypanosomiasis (sleeping sickness) prevented or
inhibited the use of large animals over much of the continent, whether
in transport or farming; and the extreme seasonality of the distribution
of rainfall over the year in much of tropical Africa severely limited the
productive uses of land during some months of the year, the heart of
the dry season.
3) The formerly mentioned resource characteristics help to account for
choices of technology, such as the preference for ‘extensive’ than than
‘intensive’ use of land (until the latter became scarce).
4) Characteristic institutions of precolonial and (often) colonial Africa
such as diverging rather than converging inheritance systems, and
reliance on coercion as a means of recruiting labor from outside the
household, have also been explained in such terms. Ethiopia is the
exception to the rule as it is a relativel fertile region.
5) Scholars writing in the tradition of Karl Marx have long contributed to
the debate on African development. They share dependency theorists’
position that capitalism came to Africa from outside, they reject the
radical pessimism of the dependency view of the impact of
colonialism in Africa. Instead they propound a ‘tragic optimism’: that
out of violence and exploitation came advances in technology and the
organization of production. They emphasize the extent to which
capitalist development had actually occurred, citing in evidence the
growth of wage labor over the last century and more, and the growth
of education and manufacturing.

African economies 1500-1650

Sub-Saharan Africa was a combination of a number of regional economies that were not
strongly linked. The African networks, however, were not only regional. Trade via the Sahara
and the eastern seas was already ancient in 1500, and institutional framework for log-distance
trade across political and cultural boundaries had long been strengthened by the adoption of
Islam as a cultural and moral foundation for trust among and with traders. This century also
saw the beginning of trade with Europe. Coastal bases were introduced and the Atlantic slave
trade was introduced eventually.

In the inlands there was intensive agriculture and often temporary for environmental and
political reasons. African took advantage of the opportunities that the Atlantic slave trade
presented in an era where slaves were still only one of several major commodities. A feature
of external trade was importation of currency materials, cowries. There was also trade to
enlarge crop repertoire. But often the relocation of African slaves took a toll on the
population.

Africa during the peak of the Atlantic slave trade, 1680-1800

the Atlantic market encouraged private and state enterprises into slave raiding and slave-trade
stimulated warfare. And wars and raids made the pursuit of peaceful froms of production
dangerous: at least parts to the ‘Gold coast’ became net importers of gold. Those enslaved
were ‘foreigners’, or people excluded from society for heinous crimes, as far as those who
sold them were concerned.

The Atlantic trade brought its advantages:

-new crops
-currencies that West African merchants adopted were more efficient than their earlier
commodity currencies >> institutional reform that reduced the cost of doing business

external trades, including the Atlantic, presumably enhanced inequality.

Markets, slaves and states, 1800-80

Two contrary impulses:
Ø the pressure for abolition, first of slave trading then of slavery itself
Ø the continuation and actual expansion of the other slave trades in and from
Africa and the expansion of slavery within Africa

The colonial era, 1880-1960

Most of the Sub-Saharan territory and population were subjected to colonial annexation some
time during the European ‘Scramble’ for Africa, 1879-1905; most recovered their
independence around 1960.

Both the lateness and speed are explained by technological changes which made it both more
attractive and less costly for European countries to invade Africa. Progressive
industrialization of Europe and North America created new or at least massively enlarged
markets for a range of agricultural and mineral products from Africa. Meanwhile the cost of
coercion for the European powers was reduced by the adoption of quinine against malaria,
and by advances in military and transport technology.
>non of this made the partition of Africa inevitable, European confidence in their power,
coupled with fears within individual European countries that their rivals would make further
annexatios in Africa and monopolize its resources if they did not do likewise, helps explain
how the Scramble began and was sustained.

different types of colonies in Africa:

 Ø settler economies (or settler-elite there was no displacement of the indigenous
population) in which most of the land was reserved for European use, especially that
of individual farmers
Ø Peasant colonies, where Africans retained almost all the land.
Ø Plantation/concession colonies, in which large areas, but not necessarily the majority,
of the land was alienated to European companies.

DeLong, Brad. “Economics 115: The Trilemma.” Available at:

http://delong.typepad.com/files/trilemma.pdf.

The Trilemma: The fact that countries cannot have more than two of the following three
things:
· A fixed exchange rate
· An open capital market (no capital controls)
· An independent monetary policy

Definition and Examples:

· Countries on the gold standard (like us 1873-1914) chose to have a fixed exchange rate and
open capital markets. They do not have independent monetary policy
· US today has an open capital market and independent monetary policy. >no fixed exchange
rate: cannot take your dollars and exchange for gold or foreign currency at a set price
· Euro countries: (like Gold standard) open capital markets and fixed exchange rates> no
independent monetary policies. European Central Bank sets monetary policy for all 13
countries in the Euro-zone
· China: fixed exchange rate and independent monetary policy. >Capital controls

Intuition:
Examples assumed that country is on a fixed exchange rate and has no capital controls.
Consequently, will be showed that the country cannot have an independent monetary system.
· If a country has a fixed exchange rate and an open capital market, it must be the case that the
domestic interest rate, I, equals the foreign interest rate i. if this were not true there would be
arbitrage opportunities.
Krasner: State power and the structure of international trade
Basic conventional assumptions: the state is trapped by a transnational society created not by
sovereigns, but by nonstate actors. Interdependence is not seen as a reflection of state policies
and state choices (the perspective of balance-of-power theory), but as the result of elements
beyond the control of any state or a system created by states.
>misleading according to Krasner

International economic structures may range from complete autarky (if states prevent
movements across their borders), to complete openness (if no restrictions exist).

The causal argument: state interests, state power, and international trading structures
Neoclassical trade is based upon the assumption that states act to maximize their aggregate
economic utility. leads to: maximum global welfare and pareto optimality are achieved under
free trade. It recognizes that trade regulations can also be used to correct domestic distortions
and to promote infant industries, but these are exceptions or temporary departures from
policy conclusion that lead logically to the support of free trade. Exposure to international
competitions spurs economic transformation.

Four major state interests are affected by the structure of international trade:
§ Political power
§ Aggregate national income: neo-classical theory demonstrates that the greater the degree of
openness in the international trading system, the greater the level of aggregate economic
income. This applies to all states regardless of their size or relative level of development.

According to Krasner: The static economic benefits of openness are generally

inversely related to size: trade gives small states relatively more welfare benefits than
it gives large ones. Empirically, small states have higher ratios of trade to national
product. They do not have factor endowments or potential for national economies of
scale that are enjoyed by larger particularly continental- states.
The impact of openness on social stability runs in the opposite direction.
Greater openness exposes the domestic economy to the exigencies of the world
market. >higher level of factor movements than in a closed economy, because
domestic production patterns must adjust to changes in international prices. >higher
increased social instability since there is a friction in moving factor, particularly labor,
from one sector to another. Impact will be stronger in small states than in large, and in
relatively less developed than in more developed ones.

Connection political power and the international trading structure can be analyzed in
terms of the relative opportunity costs of closure for trading partners. The higher the
relative cost of closure, the weaker the political position of the state. Cost can be
measured in terms of direct income losses and the adjustment costs of reallocating
factors. These will be smaller for large states and for relatively more developed
states.
>>A state that is relatively large and more developed will find its political power
enhanced by an open system because its opportunity costs of closure are less.

The relation between international economic structure and economic growth is

elusive. For small states, economic growth has generally been empirically associated
 with openness. Exposure to the international system makes possible a much more
efficient allocation of resources. Openness also furthers the rate of growth of large
countries with relatively advanced technologies because they do not need to protect
infant industries and can take advantage of expanded world markets. Long term:
openness for capital and technology, as well as goods, may hamper the growth of
large, developed countries by diverting resources from the domestic economy, and by
providing potential competitors with the knowledge needed to develop their own
industries. Maintaining technological lead and continually developing new industries
can even a very large state escape the consequence of an entirely open economic
system.

§ economic growth: defined by size and level of development of individual states, to the
structure of the international trading system, defined in terms of openness.

Example: system composed of a large number of small, highly developed states. It is

likely to lead to an open international trading structure. The aggregate income and
economic growth of each state are increased by an open system. The social instability
produced by exposure to international competition is mitigated by the factor mobility
made possible by higher levels of development. There is no loss of political power
from openness because the costs of closure are symmetrical for all members of the
system.

Example: system composed of a few very large, but unequally developed states. Such
a distribution of potential economic power is likely to lead to a closed structure. Each
state could increase its income through a more open system, but the gains would be
modest. Openness would create more social instability in the less developed countries.
A more open structure would leave the less developed states in a politically more
vulnerable position, because their greater factor rigidity would mean a higher relative
cost of closure.

Example: hegemonic system- on in which there is a single state that is much larger
and relatively more advanced than its trading partners. Costs and benefits of openness
are not symmetrical for all members of the system. A hegemonic states gives
preference to an open structure, as it increases its aggregate national income as well as
increases its rate of growth during its ascendency. An open structure also increases its
political power, since the opportunity costs of closure are least for a large and
developed state. The social instability resulting from exposure to the international
system is mitigated by the hegemonic power’s relatively lower level of involvement
in the international economy, and the mobility of its factors. Also hegemonic states
can use its economic resources to create an open structure, it can offer access to its
large domestic market and to its relatively cheap exports. Openness is most likely to
occur during periods when a hegemonic state is in its ascendency.
§ social stability
the way in which each of these goals is affected by the degree of openness depends upon the
potential economic power of the state as defined by its relative size and level of
development.

The dependent Variable: describing the structure of the international trading system
the structure of international trade has both behavioral and institutional attributes. Degree of
openness can be described both by the flow of goods and by the policies that are followed by
states with respect to trade barriers and international payments.
In common usage, the focus of attention has been upon insitutions.

Week 6: the age of extremes

Literature:
· Bischoff, Ivo. “Model Uncertainty, Political Learning, and Institutions: A Broader View
on Mancur Olson’s Theory of Institutional Sclerosis.” Southern Economic Journal 74, no.
1 (July 2007): 34-49.
· Chapter 8 Baten (pg. 249-281).
· Harrison, Mark. 2013. Secrecy, Fear, and Transaction Costs: The Business of Soviet
Forced Labour in the Early Cold War. Europe-Asia Studies (ISSN: 0966-8136) 65:6, pp.
1112-1135. DOI: 1080/09668136.2013.815417 (Links to an external site.). Postprint
(Links to an external site.).
· Slaughter, Anne-Marie. “International Relations, Principle Theories.” In Max Planck
Encyclopedia of Public International Law, edited by Rudiger Wolfrom, 1-7. Oxford:
Oxford University Press, 2013 (supporting literature for the assignment).

The 20th century brought people hitherto untold riches, unimaginable freedoms, fantastic
scientific and medical advances, Barbie and Ken, mass higher education, microwave ovens,
and lots of other nice and important things. Regrettably, it also brought about two World
Wars, brutal colonial warfare, wanton destruction, thermonuclear weapons and the
systematic, brutal slaughter of about 200 million people. This week we will discuss the
economic consequences of warfare, economic theories of war, and the economic
consequences of decolonization. In light of the different economic development between the
Soviet Union and Western countries, we will also discuss Mancur Olson's theory of
institutional sclerosis and the phenomenon of "stationary bandits.

After this week, students can:

· Explain impact of the 20 century’s mass violence on economic development and
th

international relations.

The age of extremes.

there was excessive economic growth and deadliest wars ever. the second world war cost
many civilian deaths.

In the 18 c. it were the military men that died, in the second world war also cost civilian
th

deaths. and empires collapsed.

And it was the age of the biggest social experiments:

-biggest mass murder: moa zedong and stalin and hitler.
total wars:
warfare wages with the total commitment of resources.
-Crimean war was the start of total warfare
-war fare in which all animies resources are targeted
-no difference between civilians and militarians
-fight until the other is destroyed
>clausewitch: wrote a book about absolute war

The wars had an impact in how governments interfered. this was the first time governments
started to think about regulating the economy and production.
the fisrt world war: Germans before it had planned a war economy (for the upcoming war)
in Britain there was no plan economy, it was the country of free trade and liberal market
economy. if there is a war: the market will generate everything. led to huge problems in 1914,
the economy did almost collapse because it did not produce enough shells.
Engalnd relied on goods from the empire, trade with France and troops from the colonies.
Germany did not have any colonies thus they started nuclear warfare.
>the war changed the relations with the economies.

Are wars good for the economy?

for us no war on the continent. Us profited from the first world war when it lend a lot of
money to the uk. the financial balance changed. financial banks were making a lot of money.
and the farmers were selling in Europe and the armaments industry profited too.

war stimulates innovation:

creating products and brining them on the market
first ww: tanks, planes,
second ww: nuclear weapons, computers>> used after the war too.
Innovation was needed to get the enemy down.

result of the war:

-more equality, due to public welfare polities. during the war you cannot exploit the society
because you need them.

war and the welfare state

· Compare and contrast socialist planned economies, fascist corporatist economies and
liberal market economies.
All the economic systems clashed. They were extreme opposites. After the
second world war there was a threat of communism, there was cooperation with
socialists and not put down (seen as the revolution) as before the fisrt world war.
The state made compromises and established social security and social peace.

another response to the first world war was authoritarian corporism: Mussolini,
fascism. There was private property and forbade communist parties. the only trade
unions in Italy and Germany were Nazism. There were similarities with
authoritarian and capitalist corporation: they created more or less social welfare.
For the German workers work was created as well as holidays. By nazis the big
parties were favored and big companies had to cooperate with Nazism, otherwise
the company would be taken over
 See week 2 too

· Explain the theory of institutional sclerosis in relation to economic developments in

the Soviet Union and the West.
· Describe the main aspects of economic development in South Asia.

Concepts:

All the economic systems clashed. They were extreme opposites. After the second world war
there was a threat of communism, there was cooperation with socialists and not put down
(seen as the revolution) as before the fisrt world war. The state made compromises and
established social security and social peace.

these systems can change into each other

the moment the ussr tried to consolidate the economy with the first 5 year plan. it was the
thought that the capitalist economies were collapsing. in 1929, when waal street collapsed it
was thought that it was the end of capitalism and the beginning of socialism, but it was the
beginning of fascism.

the great depression:

it had impact on Germany because it depended on the us for loans after the first world war to
refund France and England.
the role of women in the industrial industry and the economy changed. They were more
involved in social life and necessary to keep the work effort going in the US.

Dresden: revenge on the Germans.

Geopolitical reality: two super powers: US and Russia

After Rooseveld’s death, Truman’s foreign policy was anti- Russian. America’s policy
changed during the war it was not anti-Russia

debate why Japan was attacked with Nuclear weapons.

· Socialist planned economies

the first world war:
-high costs: monetary, industrial and human
-war that started deglobalization. economies were closing towards the outside world
-changing role of the government
-probelmatic: huge amount of war debts: impact on the 1920 and 30 and on the rise of
fascism and communism.
-spanish flue impact on health.

Another result of the first world war:

The Russian revolution:
- took place in the weakest state in capitalism

In socialist economy: commando economy, plan economy> very bureaucratic.

Examples are the USSR and China. USSR copied the plan economy of Germany
ww 1 and china copied communism.
 Introduced under Stalin after Lenin died
The first world war came at a high cost for many states. what happened in Russia
was that the Russian Revolution broke out against predictions of Marx, as he was
convinced that a socialist/ communist revolution would happen in the highest
developed country whereas Russia was the least developed/ weakest country of
Europe of the time.

Chronology:
Ø Vanguard party
Ø Bolshevik revolution: 1917:
violent conflict between left-wing. and right wing forces
o 1922 formation of the USSR
o 1917-1921 war communism
o 1921-1928 NEP
o 1928-1991 5- year plans: primitive socialist accumulation
o exploitation of the peasants
o Genocide (Ukraine)
Ø Aims of the 5- year plan
· catching up with the industrial revolution
· consolidating the USSR
· Creating a socialist economy

Thus, Russia was not immediately a socialist state.

When Lenin passed away there was a problem: should they maintain the
current economic system or introduce something new? Marx also had nothing
about the practive of communism in his manifesto thus the Russian socialists were
left to their own devices.

When lenin passed away: problem of the question what economy to maintain or introduce?
Stalin came up with the five year plan: primitive accumulation and exploiting farmers by not
paying their labor. a lot of farmers faught the communists because their land was taken. >>it
was the idea to create an industrial revolution in 5 years

food was always a problem in Russia, production was often too low to feed the people.

the ussr never fully recovered from the first world war and the second because they missed a
lot of labor forces. the loss of human lives was a tremendous effet on the USSR. Gradually
the economic growth was declining. Gorbatshov didn’t force people anymore in that plan
economy which is why people did not meet their production quotas and why the system
collapsed.

In the US, some private economies profited from the war. The state was more indebted,
because they buy the weapons from the private companies. they paid it by borrowing the
money from Japan. Thus US was still profiting from the system. In USSR everything spend
in the military, could not be spend on other consumption goods because of the closed
economy. But the military goods were good as well as the space technology. the soviet
system was different because it was a state owned economy.
>thus in US private people could profit
>gorbatov tried to diminish the military expanses because he was spending too much in the
military. >>but is a debate
>>link to week 4 marxism

lowering growth rates. production and income growth grow lower and lower but you see that
in Germany too

after the war (golden age) 1950/70 tremendous ec growth in the west. growth of consumption
society. soviet union and satalite states could not keep up and compete to keep the people
happy. one main problems: there was little to no incentive for inncovation (to improve
products or production process), no competition like in the west
there was unequal trade. the rubel was not used in international trade but only the eastern
countries.

· Fascist corporatist economies

another response to the first world war was authoritarian corporism: Mussolini,
fascism. There was private property and forbade communist parties. the only trade
unions in Italy and Germany were Nazism. There were similarities with
authoritarian and capitalist corporation: they created more or less social welfare.
For the German workers work was created as well as holidays. By nazis the big
 parties were favored and big companies had to cooperate with Nazism, otherwise
the company would be taken over

Dawesplan money was drawn back

When Hitler came to power, people were scared that he would nationalize big companies but
he did not. Nazi’s moved to the right (from left right) when they came to power

where did hitler get the money:

-autarkic monetary system
-savings of the people (were promised a vw and gave money but the money went into the
state)
-created national debt, expropriate and exploit occupied lands and labor .
-robbed everything they could get their hands on)
-robbed the jews from all their property, if you would immigrate you needed to leave 90% in
1938
-creation of work, salary however did not go up thus they did not profit from the working
economy.
-problem with consumer goods

small decline in living conditions in Germany. until 1943, the german population was well off
because of all the nazi lootings from other countries (resources) hich is why there were not so
much rebellions.

up until 1942, the nazis were well off, but when us and Russia participated in the war nazi
would not win anymore because both countries had bigger means of production. (operation
Barbarossa failed)

· Liberal market economies

Liberal market: free market, little government intervention. Private property possible.
Difference liberal market economy and socialism (opposites): state has a significant
powerful position (in communism the government has a dominating power).

The solution to the war debt:

 solution 1)
too little demand solution: government needs to spend more. this leads to more demand and
boost the economy. when the economy goes too well, then you need to get money out of the
government. but history has learned us that the government does not take money from the
economy.

keyns gave economists and politiians a new way of thinking about keeping the government
and economy in balance. this thinks all about the internal budget

the minds of people after the first world war:

balance of the budget: it is impossible. the first world war was revolutionary it changed art,
countries, gold standard collapse. government spending went through the roof. it change the
reality of people

-Anothr explanation:
monetarist: crisis than you put more money into the economy
Keyns ideas were popular until the 1970s.> improvement direct spending.
After that monetarists came to power: government should spend less but create more
monetary volume. when the banks have too little money, invest in them.

· Mixed economies:
Specifically in the context of the cold war. There were two big parties, the US and the USSR.
The US had the capitalist model for the economy, the USSR had a socialist (planned)
economy. However, many countries in the world did not identify as either capitalist or
socialist/ communist, their economies contain characteristics of both economic theories.
Those economies are mixed.
· Institutional sclerosis

Model uncertainty, political learning, and institutions: a broader view on mancar Olson’s
theory of institutional sclerosis

review of Mancur’s acticle in which he argues that politically stable countries suffer from
declining growth rates caused by the growing influence of distributional coalitions that
accumulate over time. Literature supports the notion of a negative relationship between a
country’s duration of political stability and its growth rates but finds only wealk support for a
negative influence of distributional coalitions on growth.

Conclusion:
Olson: countries that have been politically stable for a long time suffer from institutional
sclerosis. which is cause by growing political influence of so-called distributional coalitions.
their number and influence will increase over time, and their lobbying for preferential policy
will slow down technological progress and lead to inefficiencies. thus, politically stable
countries will witness declining growth rates as they remain politically stable. >institutional
sclerosis (Olson).

Bischoff: institutional sclerosis may result form political learning being path dependent. when
confronted with the necessity to adapt to a shift in economic structure, countries with a long
history of political stability find themselves less well equipped than other countries. thus they
experience poor economic growth. (like Olson) stable countries are likely to witness periods
low growth resulting from problems of collective action. the new theory: does not require
distributional coalition to actively obstruct growth-promoting reforms (central in Olson).
instead, both mechanisms may contribute to institutional sclerosis and low growth rates in
politically stable countries.

Literature suggests that political institutions play an important role in forming economic
policy and that, even within the group of democratic institutions, different political
institutions lead to different policy outcomes. this research can be combined with the two
models (look up in paper)
Basis of the paper: which political institutions are suitable to prevent institutional sclerosis in
politically stable countries?

scleriosis: position on isntitutions, what if the insitutions stay to stagnant and the same

Secrecy, fear and transaction costs: the business of soviet forced labour in the early cold war
Cost of doing business has for autocrat advantages, in the absence of procedural checks, they
rule by fiat. Democratic leaders must uphold the constitution that gives them legitimacy,
respect checks and balances etc. >> democratic business = costly

focus: transaction costs in dictatorship. Information is power: secrecy frees the ruler form
public accountability and so preserves his freedom of action. this regime also hinders
horizontal communication among the ruler’s subordinates and makes it harder for them to
lobby him or collude against him.

Narrative evidence to show that an increase in the level of secrecy caused soviet officials to
change their behaviour in ways that made government business more costly to transact.
>relationship between secrecy and transaction costs

conclusion:
democratic business is done in public and the transaction costs are visible.
dictators do it in secret, their transaction costs are hidden> evidence is only seen after the
regime changed and the archives become available.

there was an exogenous shock to the Soviet government bureaucracy in which stalin
tightened secrecy in 47, by which he aimed to deter officials from engaging in the
unauthorised exchange of information with outsiders. >problems: business of the Gulag in
49-50. unauthorized business became more costly, new rules made them so. higher costs
hindered transactions that were previously authorised and desired on both sides, and may
have prevented some.

…
>when the level of

Week 7: The Decline and Rise of Asia

The debate on the so-called “Great Divergence”, which has kept economic historians off the streets
for about two decades now, essentially boils down to a simple question: “why not China?”. We
now know that Ken Pommeranz’s claim, bluntly put, that on the eve of the Industrial
Revolution East Asia was economically just as advanced as North Western Europe, was
mistaken. That does not change the fact that, for millennia, China was the most advanced
economy in the world in both a monetary and a technological sense. What went wrong? And
in recent decades, what went right? And how, throughout history, has the economic
development of China affected its role within the global order? We will also discuss the
meteoric rise of Japan, the Asian Tiger Economies, and China in the 20th and 21st century.
Lastly, the international relations theories constructivism and English School will be
introduced.

Literature:
· Peter Drysdale and Samuel Hardwick, "China’s 40 Years of Reform and Development:
1978–2018", in Ross Garnaut, Ligang Song, Cai Fang (eds), China’s 40 Years of Reform
and Development: 1978–2018 (ANU, 2018), 545-574 (32 pages)
· Chapter 5 and 6 Baten (pg. 167-207).
· Rawski, Thomas. “Human Resources and China’s Long Economic Boom.” Asia Policy 12
(July 2011): 33-78.

After this week, students can:

· Explain how the institutional roots of China contributed to its impressive economic
development in the late 20th
Confucion

· Relate economic and international relations by understanding the economic and

political development of modern China.
China: Opium war, opening the market, turn to communism
Japan: Chian was its model, Sakoku (trade with the Dutch and China, that’s all),
Meiji Revolution, post war Japan’s Economic miracle

· Describe the main aspects of economic development in Japan and China.

See baten

Concepts:
· Economic Reform
· Human Capital: education and skills a population has. Also qualitities like health,
education etc.
· Chinese Century; potentially the 21thc. in which China will start dominating the
economy.
· Japanese Miracle: ‘catching up with the west’ post-ww 2 economic growth. that it
industrialized very rapidly in a certain period
growth in Germany and Japan, both countries were completely destroyed during
the second world war.
 · Liberalisation: opening of the markets, westernizing

Extra:
· great divergence: 18th- 19thc in which the West started to surpasse the rest of the world
economicaly and technically. Eurocentric term coined by pommeranz, china and the west
were first at the same level and something happened and the West surpassed China. why
not china? many potential answers : European agriculture was more easier to
industrialize, china was stable relatively and in Europe a lot of war and incentive for
innovation.
· why did china and japan’s economy grow so spectacularly in the last decade? >See Baten,
human capital (how china was traditional in training and education and that it came in
handy when china started liberalizing and human capital started being accumulated).
Japan: baten

Will asia dominate the 21thc. ?

yes: extrapolating forward, that will keep on happening.
depends:

baten:

Week 7: the decline and rise of Asia

Japan

Intro:
Eurasian countries from the late medieval to early modern periods saw their population grow,
output expanding, and commerce began flourishing. Japan was no exception. The question in
this article: how population growth became sustained

Population and trade developments before 1600

Japan is an island country, its geographical position had a demographic implication. The
physical distance ‘tended to insulate the archipelago from disease contacts with the world
beyond. This was a mixed blessing, for insulation allowed relatively dense populations to
develop which were then vulnerable to unusually severe epidemic seizure when some new
infection did succeed in leaping across the water barrier and penetrating the Japanese
islands’.

Thus, Japanese archipelago remained sparsely populated even after contact with China.
Which meant that diseases could not establish themselves in Japan. This meant that the
Japanese population could not beat ‘simple’ diseases and have cut into the population.
>McNeillian trap: a real advantage in terms of economic development was made only after
the demographic threshold had been crossed.

Different looks on the Japanese growth:

o It is said that the 16 c. meant the break with the past pattern when a 150-year long period of
th

civil war came to an end: the Tokugawa clan and their allies won a decisive battle with the
opponents and cleared the way to form a new shogunate government in 1603 when population
stood as low as 12 million.
o New estimate: one consistent with frequencies of famine. the 8 and 9thc. saw nationwide or
th

cross-regional famine. The frequency of the famines declined in the midst of a global
cooling.

State formation:
From 12 c. onwards decline of Kyoto-based central administration and the corresponding rise
th

of territorially based samurai power. A civil war caused the Kyoto to lose control over
territorial warlords, it was in this period that the decline in famine took place. The frequency
of devastating harvest may not have declined noticeable, the probability of the poor harvest
resulting in a mass starvation or excess mortality was actually reduced under warlords’ rule.
The warlords of the 16 c. brought territorial consolidation and administrative integration.
th

Warlords introduced territorial government which helped to prevent any poor harvest from
developing into a regional or cross-regional famine, which enabled the population to grow.

Also, long- run tendency in agricultural progress was associated with a change in the cause of
crop failure from drought to cold summer, the former could be overcome by infrastructural
investments.

Growth performance in the early modern period

Population grew from 1525 onwards. This growth was accompanied by land development
and output growth. Farming became intensified, but in terms of per capita there was no
growth. As the population increased, by 80 per cent, farm output per head of national
population declined marginally.
Soon after the battle of 1600, Japan began urbanizing. As the first Tokugawa shogun began
constructing new castles and surrounding town facilities by mobilizing manpower and
resource from non-Tokugawa daimyo. The building boom created a demand for construction
workers and attracted a number of merchants and craftsmen to settle in the towns and cities.
Rural population grew and urban population tripled.

Following drastic decline in silver mining the export boom ended rather abruptly in the early
17 c. the domestic economy benefited from the town buildings, but after a while the
th

government’s seclusion policy stifled the overseas trade. This was shogun’s effect to
‘substitute domestic goods for imports’, targeting raw silk, sugar and ginseng.

The rural economy appeared to grow from the late 18 c. onwards- the growth was initially
th

modest and steady but accelerated after the country’s re-entry intro world trade in 1859-
which resulted in the unmistakable decline in the urbanization rate.

Could the early Tokugawa society be under pressure of the Malthusian pressure?
it is likely that the mining and export boom had started before Tokugawa was not properly
reflected in our output estimate for 1600: the proportion of silver export to total primary-
sector output could have been somewhat higher than the 10 per cent mark. But the revised
GDP per capita would suggest that it would become negative between 1600-1721. So there
was hardly any growth. Which was accounted for by moderately high population growth of
0.5 per cent per annum. Additionally, the decline was furthered by the extinction of
exportable silver and then by end of the construction boom.
>during this process, men of pecuniary fortunes such as long-distance traders and large-scale
developer-contractors disappeared from the centre stage: and daimyo too must have
squandered away a substantial portion of their wealth on the construction of their castle
town.

After 1700, the market functioned well, the living standards did not necessarily decline.
Individual farm families became the centre of production organization and descision-making
in relation to both external as well as market conditions. The intensification of agriculture
paid: any surplus left was in the hands of the peasants. As well as non-farm subsidiary
employment also paid: it brought in more cash incomes to the household. >>on this basis
proto-industrialization and commercialization proceeded. Within Asia, Japan’s GDP
surpassed the levels of China and India during the late 18 c. and early 19 c.
th th

Early modern growth in Eurasian perspective

In the period before 1700, while England and Holland exhibited comparatively stronger
growth, both south European and Asian countries were characterized by either a decline or a
stagnant trend. Japan was not the exception but was nonetheless performing very well. It had
an average growth of 0.24 per cent, it was on a par with Holland but considerably lower than
England.

During much of the 150-year period the country was virtually closed to overseas trade and
the growth was distinctly premodern thus achieved without machinery and the factory. The
tertiary sector’s share was substantially larger than the secondary’s. There remained to be
problems with the classification of goods produced, it appears that those engaged in trading,
financing and bringing commodities back and forth were numerous. The sectoral output
growth was balanced. Rural industry expanded, especially in textiles, but agriculture,
commerce and service grew too. What took place was a separation of the cultivation of
industrial crops from food crops, the manufacturing of intermediate goods from finished
goods and the trading for producers from that for consumers. Under the seclusion, there was
no option to import raw materials, this went into sericulturists and mulberry cultivators in
surrounding villages, and resulted in an increase of primary-sector output. simultaneously,
the marketing of silk fabrics involved more transport and distribution business, creating more
part-time or by-employment jobs. It helped to create regional specialization, which again
helped the domestic market. >> forms of Adam Smith’s division of labour/ Smithsonian
growth.

It suggests that this rural-centred development did not bring gains to both samurai and the
urabn wealthy, implying that growth had a levelling effect on income distribution. And
interclass inquality was low. it is likely that the income leel o the majority of peasants was
not particularly lower than that for the median level of urban incomes or even that of lower-
rank samurai stipends. Levels of numeracy and literacy were quite high

growth acceleration and deceleration, 1868-2010

Meiji Japan opened up in the wave of 19 c. globalization. Japan is regarded as a country that
th

embodied industrialization and modern economic growth. The First World War stimulated
rather than depressing the effect on the domestic economy, and the impact of the Great
Depression was less prolonged in comparison with the Western countries. In the 1930s the
country economically grew due to military build up. But the wartime regime soon faced an
economic impasse and then experienced a precipitous decline in people’s living standard.
japan was average. The catch up with the West took place after the Second world war
between 1950 and 1973.

Japan’s economic success has often been considered a product of the state’s planning and
guidance.

(see conclusion for short summery)

China
Four important political regimes:
· Ming (1368-1644)
· Qing (1644-1911)
· Republican (1911-1949)
· Communist since 1949

intro:
Ming introduced a highly centralized unitary political regime governed by an absolutist
emperor at the top of the power pyramid, aided by a formal bureaucracy recruited through a
highly structured national Civil Service Examination rooted in Confucius classics. Beyond
the borders of China, Ming and Qing reigned supreme in East and Southern Asia through the
tributary states trade system, where neighbouring small states remained in the status of
near protectorate under which limited trade was conducted. China was isolated politically
until Western Imperialism reached the shores.
In the 15 c. China’s annual income was about 80% and in the 18 c. 35% of the world’s
th th

leading, but much smaller, economies of the time Britain and the Netherlands.
· Trade with neighbouring countries was limited but could be critically important. The export of
silk and tea which formed the basis for import substitution within western Europe.
· On the other side: inflow of Latin American silver which helped Chinese commerce and
supported monetization of public finance form the 16 c. th

· Introduction new world crops allowed the population to triple. There was a general decline in
living standards and human capital after the mid 19 c. followed by a recovery only at the turn
th

of the century. Only in the 1980s did the Chinese reach Japanese height.
· real wage reveals that China was close to less developed parts of Europe which confirms that
the divergence in living standards and per capita incomes between Europe and China already
existed before the industrial revolution and widened from the 19 c. However, at the same
th

time, there was a relatively high level of Chinese human capital, closer to that of north-
western Europe for the 18 and 19 c. But it was still lower than the numeracy level of Japan.
th th

The nineteenth century: an ominous beginning

beginning of the 19 c. was a turn for the Qing dynasty
th

· population growth sustained by rising agricultural land productivity and the introduction of
new crops may have finally stretched the limits of resources.
· Internally, several domestic conflicts eroded the Qing’s regime. Externally, private commerce
intensified between the British and the Chinese. Rise of triangular trade: export opium India
to China, draining silver from China into British hands. This was the result of the military
confrontation with the British during the Opium War, which the Chinese lost in 1842.
result>> treaty of Nanking
o This treaty meant that the regime of free trade was imposed, Hong Kong became part
of the British empire and the treaty port system opened up five Chinese ports to
British merchants.

Political accommodation and institutional adjustment to 1895

This new era forced China to open under Western Imperialism which was disastrous for Qing
which almost collapsed due to the Taiping Rebellion (1850-62).
Under the restoration, the economy recovered through revitalization of traditional
institutions: the reinstatement of the Confucian orthodox, the restoration of the national civil
service examination and the initial exempting of land taxes to lure cultivators back to war-
torn agricultural regions.
A self-strengthening movement erected, a program that aimed to expand Chinese
military strength by developing a small number of Western-style, capital- intensive
enterprises financed by the state and directed by prestigious officials who possessed the
highest credentials awarded under the Confucian academic system.
There was no introduction of modern constitution or commercial law; no reform in
currency system; modern bank or infrastructure, steamships were limited.
The treaty system accelerated the arrival of new technologies, initially only the ports
themselves, from there the spread of technologies went throughout the domestic economy.
But there where you could see the industrialization lagging behind the opportunities of trade.
thus there were obstacles to innovation, these were low investment of the government which
limited expansion of infrastructure. the second was the resistance of existing interests in the
form of traditional mercantile and handicraft guilds.

The onset of China’s Industrial Revolution 1895-1949

The Chinese defeat of the Sino-Japanese War (1894-95) had economic impact, the Treaty of
Shimonoseki that followed granted foreigners the right to establish factories in the treaty
ports. Eliminating the prohibition against foreign factories in the treaty ports sparked a rapid
expansion of foreign investment. This legitimized Chinese modern enterprises. The
government and the military wanted to modernize. Ministries of Education, Trade and
Agriculture and encouraged the founding of local chambers of commerce.
At the end of the 19 c. activity in mining and manufacturing accelerated.
th

China’s economic prospects acted as a magnet for trade as a magnet for trade and investment
during pre-war period. Foreign trade had a peak of 2 per cent in the late 1920s which was not
regained until the 1990s. In the 1930s railways were constructed linking Peking to Wuhan
There was a reduction in transaction costs when paper banknotes were introduced
(that were convertible into silver). This all resulted in an increase per capita output and
structural changes.

People’s Republic of China in 1950-2000

In 1949 the Republic of China was established and brought with it economic change. The
communist government implemented an orthodox mix of fiscal and monetary policies to
restore fiscal balance and quell hyperinflation, steps that helped facilitate recovery from
damage inflicted by the twelve years of war and civil strife.
A socialist planning was introduced and the government expanded control over
resources, eliminating long-standing shortage of fiscal revenue.

China’s plan system: (introduced with Soviet advice in the 1950s), bore resemblance to its
Soviet counterpart. They distanced themselves from Moscow as Mao Zedong transformed
rural households into large-scale collective units (People’s Communes) and by promoting
rural industrialization. They proved to be a failure: poor incentives, false reports of rising
crop output, excessive grain procurement and a massive reallocation of labour from
agriculture to industry inflicted an immense famine.

The Plan brought notable expansion of industrial and technological capabilities, as well as
improvement in literacy, school attendance, maternal and infant survival rates, public health
and life expectancy.

After Zedong’s death, for the first time China’s economy avoided most of the Qing-era
institutional constraints and the restrictive obstacles imposed by PRC. The greatest success
was in the rural economy. Rapid expansion of international trade and investment eliminated
long-standing shortages of foreign exchange.

Chinese miracle/ Beijing consensus: when mid 1990s China’s policy makers attacked the
cyclical economy and high inflation by policy changes. These included overhaul of the fiscal
system, reorganization of the financial system, restructuring of the enterprise sector and a
reduction of trade tariffs and trade barriers. These contributed to China’s enormous growth

China’s economic success should be seen by its legacy of human capital.

(see conclusion page 200 for summery)

Article:

China’s 40 Years of Reform and Development: 1978–2018

 ● Openness to international trade and investment → brought Chinese economic transformation
over the past four decades

The transformation:
● Development of domestic market through reforms

● Integration into international markets via trade, investment flows, the spread of knowledge etc

China’s reforms happened simultaneously with the era of increased globalisation, where
reforms were driven by multilateral trade negotiations within organisations such as the
General Agreement on Tariffs and Trade (GATT(, the WTO and the Asia-Pacific Economic
Cooperation (APEC) forum.

China reaped the benefits of 2 factors that this era brought with it:
1. The rapid adjustment of the structure of the world trade → in response to more openness and
flow
2. The rapid reductions in transaction costs because of technological advancement

The role of the WTO in China’s integration into the world economy
China’s goal of joining the WTO necessitated (1) large-scale national economic reforms and
(2) the acceptance of global trade rules.

As a result of reforms, markets in the country became more open and competitive, the
Chinese economy became integrated into international markets.
● A more efficient allocation of resources

The effects of joining the WTO in 2001:

● Higher investor confidence in China → more FDI (foreign direct investments)
○ An effect of the reforms as more transparency was created with policies
○ Also, the position in WTO meant that unpredictability + information asymmetry was
mitigated
● Rapid growth in China’s contribution to world trade

Liberalisation and reform

The push for joining WTO got its base from the 1980s when reform and opening took place
in China.

Together with the move towards freer trade, rapid industrialisation + rural-urban migration
(supplied the labour force) gave China a massive advantage in labour-intensive
manufacturing industries which allowed the country to become the world’s leading exporter
of manufactured goods.

The urbanisation process that took place resulted in productivity gains, rapid economic
growth and an increasing share of world production and trade.

● Essentially, the absorbance of the rural migrant workers into the export sector → a key
element of China’s integration into the global economy
China’s economic openness worked as a catalyst to domestic institutional and policy reforms.
From this, the later adherence to the WTO principles resulted in Chinese institutions
(economic, legal, social & political) becoming more aligned with international practice.
● Institutional change

Before taking the path towards the WTO, China requested to join the GATT in 1986 & from
1991, the APEC forum was the primary facilitator of China’s liberalisation.

What changes did liberalisation entail in China?

● Abolishment of export subsidies
● Lowering tariffs
● Liberalisation of services → openness to foreign firms & international trading rights given to
domestic firms

Through the APEC cooperation, China and other Asian economies became integral parts of
supply chains and this drove economic integration and growth.

Parallel developments
● From the end of the 1990s: preferential trade & new regionalism
○ Came from a loss of faith in global arrangements such as the IMF and also the
capacity of APEC
○ The proliferation of a set of preferential bilateral trade arrangements between Asian
countries with more diplomatic than economic value
○ Regional Comprehensive Economic Partnership (RCEP) → countries such as China,
India and Indonesia; enables the salvation of the fractious political relations among
the Asian powers and helps to deal with the United States

● Globalisation and connectivity

○ The Belt and Road (BRI) strategy → Chinese strategy for achieving sustainable
development through strengthening connectivity with partner countries and realising
mutually beneficial economic relations.
■ Investments in infrastructure capacities to promote economic integration
through better connectivity

Today’s pressures and priorities

1. Underregulated foreign investment
1. In (1) the pre-establishment phase, before an investment enters a country and in (2)
the post-establishment phase, how the investment is treated nationally
2. As a result: obstacles to Chinese investments & an unbalanced competitive structure
between US, European and Chinese firms
2. Cyber trade & next-gen trade rules
1. The regulation of international trade is a source of friction as it raises contested
economic and political questions
2. Data regulation
1. The free movement of data → not present enough in multilateral agreements
2. The data localisation principle (that firms physically locate their servers
within the country)
3. China and its internet filtering as a barrier
4. Protection standards such as the GDPR and their effect
Rawski, Thomas. “Human Resources and China’s Long Economic Boom.” Asia Policy
12 (July 2011): 33-78
Main argument: a rich human capital (that was accumulated prior to 1949) explains China’s
continuing boom especially that happened after 1978.
● The traditional rural society provided the depth and breadth of China’s economic capabilities
● Furthermore, the same type of society granted a unique form of business formation and
extended organizational capabilities.

According to the author and a growing body of academia, China’s economic boom after 1949
comes essentially down to the impact of cultural institutions in prior decades and centuries.

Such institutions could be defined with one word as tradition, where we would find also
trade-related traditions, traditions relating to the learning culture and so on.
● Trade institutions developed especially in coastal regions and so now these regions have by
far the highest commercial capabilities.

● Together, the cultural institutions have greatly increased the value of China’s human
resources.

Week 8:
Week 8: Collaboration and the Modern World Order
After the various bloody and pointless struggles for World Domination had mostly come to a
standstill, the final decades of the Twentieth Century and the beginning of the 21 saw a
st

remarkable trend towards collaboration, the lowering of trade barriers, and the establishment
of a peaceful global economic order. This is a step forward, especially as compared to the
carnage and repression that went before. On the other hand, the power and influence of
multinational corporations, increasing threats of trade wars, the deterioration of the global
environment, the increasingly skewed distribution of wealth in developed countries, and the
consequences of a pandemic, are all reason for concern.

Literature:
 Yuhan Zhang, "The US–China Trade War: A Political and Economic Analysis", Indian
Journal of Asian Affairs 31/1/2 (June - December 2018), 53-74 (22 pages)
 Keohane, Robert. "International Institutions: can interdependence work?" Foreign Policy, no.
110 (Spring 1998): 82-96.
 Atkinson, Anthony, Paul Schreyer and Jean Paul-Fitoussi. "Summary of Evidence Session
“Beyond GDP: Other Income Measures of Growth”." Available at:
http://www.lse.ac.uk/researchAndExpertise/units/growthCommission/documents/pdf/
lseGC02May2012_summary.pdf (Links to an external site.)
  China IR theory – China as the Middle Empire – hierarchical
https://www.nbr.org/publication/chinese-thinking-about-international-relations-from-theory-
to-practice/ (Links to an external site.)
 Chapter 9 Baten (pg. 282-315).

After this week, students can:

· Describe the main international organisations for economic collaboration and trade.
· Explain the rise of economic nationalism and protectionism in the 21 century.
st

· Explain how current and future international relations are dependent on the economic
development of countries.
· Explain the advantages and disadvantages of using economic growth as a measure of
prosperity and well-being.
· Describe the main aspects of economic development in South-East Asia.

Concepts:
· Economic Nationalism
· Protectionism
China before opium war
· Middle Empire
· Trade Wars (from Yuhan Zhang)
○ Ways of acting
■ Imposing tariffs
■ Banning items
○ Consequences
■ Shut-downs of companies
■ Massive unemployment
■ Currency crisis
■ Deglobalization
■ Global great depression

Baten

Baten Chapter 9 part 2: Southeast Asia and Australia/ New Zealand

Southeast Asia and Australia/ New Zealand

Introduction:
Countries with highest living standard in the world:
· Australia, New Zealand and Singapore
Poorest countries in the world:
· Papua New Guinea, Timor-Leste
Developing countries (half a century ago)
· Malaysia, Thailand, Indonesia
Still developing:
· Philippines, Vietnam, Laos, Cambodia
Chapter about countries that have transformed their societies, over-thrown colonialism,
endured wars and invasions and undergone extensive economic change, and others that have
developed in comparative peace.

Shaping elements for the countries:

· The countries in this chapter possess deep social and cultural origins; many with foundations
in long existent and ancient civilizations that flourished centuries ago.
· Shaping economy in this region has been histories of turbulent, violent, political, institutional
and social change. colonial rule and war, and struggle for independence still influence
economic attitudes and policies of these countries

Geography and latitude:

three main regions:
· Southeast Asia (Cambodia, Laos, Myanmar, Malaysia and Singapore)
· Australasia (Australia and New Zealand)
· Island between sub-regions (Timor-Leste, Indonesia, Papua New Guinea and the Philippines)

The pre-colonial period 1500-1800 (chronology!)

period before 1500 saw rise and fall of empires but continuation of long-distance trade.
Before the arrival of Europeans, Southeast Asia comprised a mixture of sophisticated
societies. Living standard between majority of subsistence farmers and elite war great. The
elite was small and administrative and religious, in some they were artisans and traders as
there was no middle class. >not too dissimilar from Europe

Europeans were familiar with commercial trading ports, for their locations and the centres of
spice production (list on page 284). Trading contact began slowly and they were most likely
constraint to the port regions and hinterlands. There was a failed attempt to monopolize the
spice trade (Portuguese, 16 c.). European controlled routes started to grow comparatively
th

slow.

Trade quantities grew slowly up to the 18 c. (sometimes decreased slightly). The doctrine of
th

mercantilism resulted in a significant expansion of European interests competing to capture

control of trade with the ‘Far East’. Mercantilism saw national interests align with trade, so
that state power was enhanced through accumulation of precious metals and trade surpluses.
European countries slowly started colonizing.
Regardless of these expansions, there was comparatively little interaction with
Europeans. Often because many people lived away from the ports and main points of contact
and the Europeans had little interest in local affairs.

New imperialism and the colonial period chronology!

A shift in ideas saw European nations shift from mercantilism to empire building across the
18 and 19 c. War and industrial transformation had reshaped attitudes capabilities in Europe,
th th

this meant increasing pressure on rulers in Southeast Asia (treaties, compromise). Slowly
European states took over.

Effect of imperialism: transform the social, political and cultural experiences of these
countries as well as their economies. Most important: shift in the production of commodities.
-Creation of dairy farms of New Zealand
-Sheep farms and wheat fields in Australia
-Rubber plantations in Malaysia, Java, Sumatra, Vietnam and Cambodia
etc. >> were all responses to powerful market demands. millions of acres of land and millions
of people were drawn into supplying markets around the world with commodities of all
kinds.
Production chain changed as large scale production required more intensive use of factor
inputs.

Period between Napoleonic wars and First world war change in technique: revolution in
transportation technology> from sail to steam, animal drawn carts to railway< and
communication innovated. This meant the fall in costs that enabled expansion of trade costs
and a link to the periphery which supplied raw materials. People started to migrate from the
old world to the new world.

Legacy of colonialism:
· shaping and defining of many of today’s national boundaries
· standardization of record keeping, and internationally recognized (to Europe) laws,
administrative processes and property rights
· Colonialism increased local population’s awareness of the ‘outside world’, as they had less
control over their own affairs.
· Western education was recognized and utilized and the connection was made for local rulers
between education and economic growth and political administration
>however, no equal distribution of resources
>colonists’ living standards were among the highest in the world

colonial powers were required to transfer control to non-European local inhabitants. But
tensions rose over who benefited from economic growth, colonial attitudes to local people
and growing levels of education (among local elite) saw the emergence of increased
aspiration for independence. The Japansee conquest during ww2 further reinforced the
resolve of local people for independence, while demonstrating that European authority was
not unsurmaountable.

Each country followed a different path to independence (see page 290)

Post Second World War

After the Second World War, global period of a more open trade and international
cooperation. Even though wars and civil strife continued in Southeast Asia, there was an
improvement to trade and living standards.
Singapore emerged as one of the four ‘Asian Tigers’ along with Hong Kong, South Korea
and Taiwan. Their growth was 6 per cent per annum.
Cause of their unique growth:
· trade openness (export push policies)
· financial stability (macroeconomic and in the banking system)
· international cooperation (in increasing globalizing world
· technology
· increased physical and human capital per worker
· improved health and education
· demographic changes that increased labour supply and demanded for consumer goods
· shift toward manufacturing
· cheap energy
· interventionist government.
>>> golden age of growth
Indonesia: remarkable economic growth with few indigenous being educated. (summery for
other countries page 293-294

Baten Chapter 9 part 1: institutional development in world economic history.

Institutional differences might explain the contrast between rich and poor countries and
regions. The ‘institution of private property’ encourage investments and ‘extractive
institutions’ are poison for economic development for example.
>a institutional quality index exists.

one core issue of institutional influences on economic development is the direction of

causation: are institutions really influencing development, or are simply high stages of
development associated with good institutions?
>settler mortality: the idea is that European settlement decisions were influenced by the
disease environment and population densities in the target countries. Where disease
environment was more benign, as in countries that became the US, Canada and Argentina,
large numbers of Europeans were willing to settle, and they brought their growth-enhancing
European institutions with them.
In contrast, areas where the first settlers faced high mortality rates, as in West Africa,
Europeans tended to implement more exploitative institutions. Which survived the end of
colonialism. Postcolonial governments continued with institutions that were not growth
promoting, with catastrophic effects on growth that have persisted until now.

Another way to explain growth process, namely migrant capital, which implies criticism of
the settler instrument: if potential instrumental variables are related through another line of
causation, they fail to be good instruments. Settlers might have brought their institutions with
them, but primarily, they brought themselves and their embodied capital

The US–China Trade War: A Political and Economic Analysis

By Yuhan Zhang

Main argument
President Trump’s attempt to deal with the bilateral trade issues in the US-China trade by initiating
trade war is NOT able to actually solve the 2 following issues (for the Trump administration):
1. US trade deficits (trade imbalance)
2. China’s fast technological advancement

And the fix?

Regarding the latter ‘issue’, there is no point in trying to stop this process as:
● China’s economy is consumption-driven and thus technological development is essential
(increases China’s gross output)
● The Chinese government is 100% determined + has the necessary capacity to advance
technologies

However, resolving the first issue requires the following changes from the countries:
 ● The United States should implement policies to eliminate the current account deficit →
requires flipping around the net capital inflows
○ Possible solution: switching from the US dollar to a global monetary unit that is
independent of any national currency (crypto?). This would get rid of the US dollars
in the reserves of foreign countries and thus will help to solve the account deficit.
● China, on the other hand, should speed up its economic reforms: a comprehensive social
safety system and a liberal financial market are necessary. In the immediate run, China must
prevent further RMB devaluation and raise its interest rate.

Lastly, communication between China and US and active negotiations are key to ‘be on the same
page’ regarding trade.

International Institutions: can interdependence work?

by Robert Keohane

An analysis of the world politics in the 1990s.

International institutions = the rules that govern elements of world politics and the organizations that
help implement those rules

Examples of such institutions: WTO, NATO, IMF, UN

Growing importance of international institutions when it comes to maintaining world order.

In history: bigger reliance on the institutions is a new phenomena (1960+)

● Although the UN existed earlier, its role remained non-central, it only accomplished some
occasional peacekeeping missions
● From the 1960s onwards: The Treaty on the Non-Proliferation of Nuclear Weapons; NATO’s
growing influence; IMF had evolved by the 1960s to be the leading agent for promoting
economic development in Africa, Asia and Latin America
● 1940: 70 international institutions; 1981: 1000 international institutions
● 1970s crises (oil and exchange rate) resulted in policymakers in the US realising that
systematic policy coordination for fixing global issues requires international institutions.

The bigger importance of international institutions fostered research by political scientists on the
following topics: international rules and norms that affect the state behavior; what affects cooperation,
how does it occur; why should international institutions exist in the first place if the world is
dominated by sovereign states??

The answer to the latter: reduces uncertainty and increases credibility. (the new institutionalist view)
(1980s)

This view garnered a fair amount of criticism who focused on 3 perceived shortcomings of new
institutionalism (1989 to 1995):
1. International institutions fundamentally irrelevant as states have all the power
2. The world is in a state of anarchy and as state prefer relative gains, cooperation is hindered,
won’t last long
3. Cooperation does not always contribute to solving the problems; bargaining could result in
obstacles that hinder joint gains

The debates at the time of the article (1998):

● Bargaining issue → how institutions affect international negotiations?
 ○ Tied to the search for: What structures, processes, and practices make international
institutions more or less capable of affecting policies-and outcomes-in desired ways?
○ The impact of institutional arrangmenets on bargaining
● The end of the Cold War → increasing focus by scholars on norms , ideas , information
○ The procedures and rules of international institutions create infor- mational
structures. They determine what principles are acceptable as the basis for reducing
conflicts and whether governmental actions are legitimate or illegitimate.
Consequently, they help shape actors' expectations

Lastly, the democratic deficit: the lack of democracy in international institutions. A focus for
discussion.