This lecture is going to provide the reader with a brief history of global capitalism. What is meant by global capitalism or international political economy is the structure and dynamics of the international economic relations.

This is not a typical history of the international economy in that we are not going to be looking at things like productivity developments within individual countries, output levels within individual countries. That is purely economic and referred to the dynamics of national economies.

So, this is not a typical history of the international economy and what it is an attempt to provide a history of the evolution of the way internationally economic relations developed in this some time in the 19th century. We are going to be looking at four separate periods. Within each one, we are going to be looking at trade, international commercial relations, investment and the structure of production, money and finance, and also we are going to be looking at some considerations on geopolitical dynamics; and ideological development. This is an attempt to periodise the political history of the last 200 years. There are distinct developments of global capitalism over the last 200 years.

The first one is called the First Globalization what some others call the years of classical liberalism, the golden era some people call it which is the period from sometime in the mid-19th century to the First World war. Then we will look at the interwar integration of global capitalism. The third period is called embedded liberalism and refers to the first post-war stage in the late 1940s to some time in the mid-1970s and then the last stage that is the current stage of the Second Globalization which begins sometime in the mid-1970s and it is still going up.

=The first globalization Origins Why is it that the global economy comes into being? Some authors say there has always been a global economy, and there has always been economic interactions, exchanges among entities that are far away from each other. Some others say it starts with the triangular trade related to the discovery of the Americas. Some other say that actually, global capitalism emerges sometime in the first third of the 19th century and that is because of the Transport Revolution of the late 18th century that led to a much greater extent of market integration, price convergence among distinct economies, that gradually come into contact with each other and gradually become integrated with each other.

For Kevin O'Rourke and John Williamson, global capitalism emerges in the 1820s, and they document in their article the fact that from the 1820s onwards there is a secular process of price convergence which basically means that there is an international division of labor that comes into being and that characterizes the distinctive feature of over global integrated economy. That is the kind of background to our story and the enabling factor. Without that, we would not be able to be talking about global capitalism.

In ideological terms, the Transport Revolution and market integration in the 18th century come along with the decline of Mercantilism and the rise of liberalism, the rise of free trade ideology. Between the late 18th century and the 1820s, many people in England and most importantly, Adam Smith and David Ricardo developed the prescription of comparative advantage theory which forms the core of international trade. The idea is that we should stop caring about the trade balance, we should stop caring about states exporting more than importing more, and we should stop caring about producing everything that we consume within the English economy. If something is produced more efficiently, it is cheaper to import, we should be importing it, so that it frees our purchasing power and we can reinvest that surplus into the domestic economy and develop productive capacities. That is the prescription of the comparative advantage theory. What follows is the Manchester School of Liberalism that developed around Manchester, which is the site of the first industrial revolution in the late 18th century and early 19th century. That school of thought came to dominate ideologically in England first, and then it diffused through different channels, first in France and then to the rest of Europe with some exceptions. The Corn Laws in 1846 enabled United Kingdom workers to consume cheaper foodstuffs initiating symbolically the great era of free trade that lasts until the First World War. Along with that comes a geopolitical context in which England is the dominant power, coined by some authors as Pax Britannica, and a global economy that is centred and structured around London. Today, New York is the capital of global capitalism; in the 19th century, London was the capital of capitalism. What London and the United Kingdom do? What were the functions that they assumed? That global capitalism, the United Kingdom acted as a hegemon that anchored the system by assuming a number of functions. Firstly, it provided free access to the domestic market. A free-trade dominated by England meant that other countries could export freely to the United Kingdom. Since the United Kingdom had the biggest economy, it also provided the biggest export markets for other economies that used that access to that market to grow their economies. So the United Kingdom provided free access to its market, and it also provided capital for investment across the globe. Much a lot of the infrastructural investment that took place before the First World War across the globe including most importantly in American railways came from the United Kingdom, and that had a powerful developmental effect for the global economy as a whole. Lastly, the United Kingdom and the London financial market, in particular, anchored to the international monetary system. Through the gold standard and through the functions that London bankers played in lending money to different people and different firms across the globe in order to stabilize currencies stabilize commercial transactions and so on. These are the origins of the years of First Globalization or the years of classical liberalism. TRADE How international economic relation looked like in the period between the repeal of the Corn law in 1846 and the Versailles Treaty in 1919? There was a gradual dismantling of protections until about 1880, and it was driven by United Kingdom policy. The United Kingdom began to liberalize its foreign trade unilaterally at first, and then to sign bilateral free trade treaties, most importantly with France and the Cobden-Chevalier treaty in 1860. By doing so, they provided the impetus for a good number of other states in the global system to do the same. The Cobden-Chevalier treaty is important because France is the most important continental power at the time. Before the unification of Germany, France is still not a hegemonic power on the continent but a dominant power on the continent. Thus, the fact that the dominant player of the world system, the United Kingdom, signs of free trade deals with the dominant regional power in continental Europe, which is the centre of the world at the time, had a significant impact on the way the global economy worked at that time. Another critical aspect of the gradual liberalization of commercial relations was the spread of colonial possessions. It is important to remember that notably the United Kingdom and France had a few colonies before the 19th century. But the spread of colonialism takes place during the 19th century. That is important because colonial possessions became open to free trading area. The United Kingdom and France had converted to free trade, and through the dominance that they exercised political dominance through their colonial possessions, they opened up markets across the world to free trade. They did that through their dependencies and also by free trading former colonies in particular in Latin America, and particularly Argentina. At the time, Argentina was a very important market. It was as rich as France; it was richer than Italy and Germany. Argentina was a very important state for the global economy of the Golden Era. There are two major exceptions to this picture. The first one was the United States. From the Civil War onwards and so throughout the 19th century and until the mid-1930s, the United States was the most protectionist country. Its domestic market was virtually sealed to input from the United Kingdom. That was enabled by the victory of the North over the South during the Civil War because before that the Southern landowners and the slave owners were the main free trading political forces within the United States.

When the North, the industrialists and the Industrial Working Class in the North won the Civil War, that paved the way for protecting the domestic market and for promoting and implementing developmentally infinite industry promotion policies. The second major exception is Germany shortly after unification. 1879 is the moment when the landowners represented by Bismarck's allies with the rising capitalists, rising bourgeoisie against the SPD, against the socialist movement, against the working class. They implemented policies of protectionism across the board. The major difference between Germany and the United States is that the landowners in Germany are protections. In contrast, the landowners in the United States are pro-free trade. In international political economy by Ronald Rogowsky published in 1989 Commerce and Coalition's he applies the Heckscher-Ohlin theory to the international economy. That shows how coalitions between factors of production of classes played out during the 19th century and led to the three outcomes mentioned earlier: Free trading in the United Kingdom and protection in the United States and Germany. In terms of the overall dynamic of the system exports as a share of the world, output picked just before the first World War in 1913. Although there is a slump in the ratio of exports to the world output in the 1900s, then the share goes up in 1913, the moment when the global economy is the most open during the classic era. Investment

As said previously, London provided investing capital for infrastructure across the world. But, how did that happen? This is very important, and this is the question of the composition of international investments during the golden age. The shape it took was mostly bank loan for infrastructure investment and extracting activities such as mining or raw materials production.

That very few multinational corporations that existed at the time were in the primary sector in the mining and raw materials and agricultural sectors. They were organized, and it happened spokes structure where the advance countries exported capital to developing countries, but also to the United States while the less developed countries exported raw materials and commodities back to the advanced countries.

Until the Civil War, it is important to note that a country like America fitted could be said to be part of the developing world. Why? Because the way it inserted itself in global capitalism was by being one of the spoke structure and the heart being England and France to a lesser extent. So before the Civil War, the United States mostly exported raw materials cotton in particular from the South to the United Kingdom and France.

That was a pattern that during the classical era, was prevalent in the relations between Europe and Latin America, Asia, and Africa. That was the basic structure of the relationship between the advanced world and the developing world whether that developing world was an independent state in Latin America or colonial possessions in Africa and Asia.

Obviously, the international investment regime was based on colonialism because colonialism provided a legal framework within which the rights of basically English investors in Africa, Latin America, Africa Asia, and so lesser extent lands in America could be protected. Colonialism was to some extent a legal guarantee that if you were sitting somewhere in London and investing in bonds or equity in South Africa, you were sure that your rights were going to be protected because of Her Majesty's government care of that.

There is also the spread of the United Kingdom's Common Law as the major legal framework. That was used to organize international economic activity. The second pillar was the gold standard. The gold standard is that most currencies in the global were fixed in relation to gold. The gold standard operated as a good housekeeping seal of approval whereby investors knew that if a country was attached to the gold standard, it pursued microeconomic policies that safeguarded the interests of investors.

MAP BRITISH EMPIRE 1914

From that spot in the North Atlantic, a big chunk of the global economy was organized. By repercussion, the rest of the global economy was organized around the British Empire. And of course, China was under the influence of foreign powers and to a large extent of the United Kingdom. Money How was the international monetary system organized? Gradually as Pax Britannica has spread across the globe, the monetary standard that was used in the UK became the monetary standard for the world, namely the gold standard. Gradually the world abandoned silver standards or by metallic standards were both gold and silver were used as the basis for organizing the monetary system. Some times after 1870, the gold standard more or less became the international monetary standard. The bank charter act of 1844 in the UK that formalized the adoption of the gold standard. It is important to know that just as today the international monetary system is based on the dollar and therefore, the New York financial markets play a dominant role in regulating the way the system works. That was the same back then with the City of London. Today the City of London plays a similar role to New York, but it does so in dollars and sterling. London is a major global hub for finance, but it is a hub for dollar finance, not sterling finance. In a way, it is not an annexe of New York, but it plays a similar role to New York in the current system. At the time, the city of London provided the international reserve currency. People knew that just as under the Bretton wood system, Dollars was as good as gold. At the time they knew that sterling was as good as gold. If you held sterling and asset in sterling, you were sure that their value would be preserved, okay. So investors central banks across the world, private investors, were keen to hold Sterling and so sterling became world money in a way, he international reserve currency. And also provided liquidity to stabilize international monetary systems for bank loans organized by private finance. The gold standard was a good housekeeping seal of approval. Because in theory, the gold standard function in an automatic way. If a country registered trade deficits, it was importing more than it was exporting, There were gold outflows. There was a net outflow of gold. Why? Because countries had to pay with gold for their imports, and if they were in earning as much gold as they needed to pay for their inputs, there was a net outflow of gold. Because prices and wages were linked to gold, if there was a net outflow of gold, there was a deflationary effect that dragged prices and were just down and that led to an automatic process of macroeconomic adjustment. If prices and wages, in particular, fell in the domestic economy that was registering in trade deficit then obviously the purchasing power of that domestic economy came down, diminished and therefore the volume of inputs diminished and balanced was restored. That is the theory. It was not exactly like that, but that was a dominant way in which the international economy function At the macroeconomic at that time. It is important to understand that what that meant was that external stability and monetary stability are either linked between domestic currencies and the domestic money supply to gold Prevailed over the primacy of internal considerations. It was not possible under the gold standard to say that you wanted to reflect your economy by raising prices, by raising spending whilst at the same time you had a trade deficit. You couldn't do that, or you had to leave the gold standard. And you didn't want to leave the gold standard because as the gold standard was the good housekeeping of approval, If you did that, then inward investment from the UK and Europe would stop, and you would have a problem in funding your investment projects and so forth. And so adjustments were entirely domestic. It happened entirely based on deflating prices and wages. Therefore it required full elasticity of prices in wages.

The interwar disintegration of global capitalism The absent hegemon Let us start with the geopolitical and ideological conditions. The major feature in the transition between the first two stages of global capitalism is geopolitical, is the decline of Pax Britannica and the absence during the interior-war period Of a replacement, of a new hegemon that would take over the role played by the United Kingdom in the classical era and Pax Britannica. In other words, Pax Britannica was no longer, but Pax Americana had not yet arrived. That is the basic story. And of course, that is the theory developed by Charles Kindleberger in his book, and that provided the impetus for the first major theoretical debate in international political economy in the 1970s, namely hegemonic stability theory. The key fact was that American foreign policy was not yet fully liberal internationalist. Moreover, the American economy was still very much inward-looking. Jeffrey Frieden documents document how during the interval period American banking American finance and some capital intensive industrial sectors became outward looking because they had internationalized because they had started earning a good chunk of their profits abroad. Therefore they provided the basis for liberal internationalism. However, their weight within the domestic economy was not yet dominant enough in order to shift decisively the foreign policy of the United States towards liberal internationalism and away from protectionism and isolation. It is important to note that in the history of American foreign policy, you have two major stages: the 19th century and until the interwar period, you have protectionism and isolationism. The United States protects systemic markets and keeps out of the affairs of the political affairs of the world. And then from the interval period onwards, America became globalist power. Trump gave a speech the other day at the United Nations, and he said that the globalists are not going to fashion the 21st century, but patriots will. He is trying to reverse the court that the secular course of American policy. From the interwar period, America became a globalist power, a liberal internationalist power that promoted free-trade in open global capitalism and at the same time, both became interventionists abroad. The issue that crystallized this geopolitical Dynamic was the ratification of the League of Nations treaty. Because the League of Nations was the project first and foremost of President Wilson, it was an American project. But the treaty was negotiated, and then the United States Senate refused to ratify the treaty. Therefore, the United States never took part in the look off. In terms of economics international economics, there was a gradual turn to protectionism in the 1920s under the Republican administrations. So the party of protectionism and isolation is almost a republican party until the 1940s, and the party of free-trade engaging with Europe was the Democrat party. Before, the Republican Party was the party of the industrialists in the North. In contrast, the Democratic Party was the party of the slave owners in the South. There was a turn to trade protectionism in the 1920s with a series of hikes in tariffs. In terms of finance, the United States refused to play the role of lender of last resort to stabilise the international system by extending credit after 1929 when panic ensued after the Wall Street crash. The United States went off the gold standard in 1933 by giving primacy to domestic considerations. Franklin Roosevelt, the President of that time, said so in so many words that crystallized isolationism in the 1930s. There has been a shift from the 1930s onwards towards liberal internationalism, but that shift did not culminate until the Marshall Plan in 1945. In terms of ideology, the interwar period sees the decline of free trade and liberal economic doctrines and the associated rise of Keynesianism in terms of macroeconomic management, the idea that you cannot allow the macroeconomy to operate automatically as the gold standard prescribed. The welfare of state the idea that there had to be some way of securing the incomes of workers. Along with the welfare state comes the idea of collective bargaining recognition of unions to set a floor below which wages cannot fall. And state interventionism in macroeconomic policies of the state taking over corporations regulating economic activity. In terms of foreign economic policy, there is the rise of economic nationalism that in some cases assumes the form of economic autarky in particular in Nazi Germany, but also in the Soviet Union. In other cases, such as in the case of the United Kingdom, it assumes the form of imperial trade preferences and imperial protectionism within the British Empire. In contrast, before, the British Empire was opened to the trade of the world. From 1932, it ceases to be so. Keynes wrote two pamphlets that marked the period. One was a critique of the Versailles Treaty and the way that the Allies tried to settle the issue and the other one is this critique of the attempt by the United Kingdom government to go back onto gold in 1925 by applying a deflationary policy, and that is his critique liberalism in domestic affairs domestic economic. trade There is a trend of protectionism in the 1920s, and it culminates in the early 1930s leading to a general turn into economic nationalism and autarky. The key dates to remember is 1930 the Smithonian Act in the United States.

You can see the spike in the tariff level in the United States that's the highest point of protectionism in the United States history, and it happened in 1930. It reversed in 1934, but 1930 is the culmination of American protectionism.

In terms of the United Kingdom, the imperial preference system is set up in 1932 through the Ottawa conference whereby the dominions and colonial possessions agree to raise tariffs for inputs from outside the British Empire. Thus, the United Kingdom is promoting an inward-looking trading block centred around the Empire. France also turns towards its empire, which is much smaller and so it is less of a problem.

There are German and Japanese attempts to form close regional trade blocks in the 1930s. That actually begins before Hitler takes power in 1933 with an attempt in 1931 to form a customs union between Germany and Austria. And then he takes other forms, at the beginning, such as attempting to form preferential trade agreements with states in Eastern Europe. Japan tries to set up the Greater East Asia course prosperity sphere. It invades China in 1937, takes over the Philippines, and attempts to proceed in the same way as Nazi Germany, but in the East Asian economy.

The Soviet Union turns inward after the Stalinism socialism in one country prevailed in Sometime after 1927. Thus, the USSR is probably the most closed of these national economies in the 1930s and the 1940s.

Then Latin America, in particular, Argentina abandons the free trade of the 1930s that was centred on the export of raw materials and the dominance of landowners over capital and the working class in those countries. Because of the terms of trade for raw materials collapse, they are no longer in favour of those national economies. In contrast, the prices of manufactured imports do not collapse.

If one were to determine the point at which this dynamic was reversed, one would have to choose the reciprocal trade agreement act of 1934 that authorizes the American President to pass trade agreements without ratification by Congress. From that point onwards the American President becomes a bastion of free trade as opposed to the more protectionist-inclined Congress. American industry also becomes much more internationalized and abandoned the traditional policy of protectionism and isolationism. The Republican party from sometime in the late 1930s onwards also becomes liberal internationalist, and that culminates with the administration of Dwight Eisenhower in the 1950s.

GRAPH 3829

This graph the evolution of trade and tarrif for the US Investment This period is the beginning of a major shift in the way the international economy operates. That is the most important fact that distinguishes what happens after the Second World War with what happened in the classical era before the First World War.

That is when American corporations begin to invest for production abroad. There is a new pattern of international investment. It doesn't happen within the hub and spoke structure, and it is no longer north-south. It is no longer developed countries exporting manufactured goods and importing raw material from the south. It takes more the form of north-north foreign direct investment within the same sectors of activity in particular industrial sectors.

Bank loans as a share of international investment decline and foreign direct investment (FDI) operate themselves. Economic operations abroad take over. That is the beginning of multinational enterprise as we know it today. Before, in the classical era, there were no multinational enterprises in the form that we know them today.

In the case of Europe that sparks. It took of commercial invasion of Europe and stimulated the surge for a large unified market with Europe to rival the size of the American and imitate the size of American corporations. That is where the beginnings of the idea of European unification come from. While looking at the history of Europeanism and ideologies in the 1910s, 1920s and 1930s, it is clearly a reaction to American economic dominance, and American economic dominance and advance are perceived as a function of the size of the American domestic market. The idea is that Europe has to have the same domestic market as the United States or at least equal to that of the United States to be able to develop large corporations, just like the American had done. Similarly, Japan attempts to broaden its domestic market through the GEACPS.

In less developed countries, there is a decoupling that initiates from global capitalism. There was an inward turn because of the degradation in terms of trade which initiated a wave of expropriations of foreign multinational corporations in particular in the oil sector. The oil sector was the sector that typified the hub and spoke structure of international investment and international production.

The key date characterizing that turn towards expropriating for investment is the Mexican oil exploration of 1938 that created the national oil corporation Pemex in Mexico and then was followed in particular by Saudi Aramco. Money

The gold standard broke down in 1914 and countries, including the United Kingdom, started issuing fiat currencies. What are fiat currencies? Fiat currencies are what you have in your pockets today, namely paper money. That value is not fixed to a metallic standard to precious metal.

Its value depends on the money supply, on the volume of money, and that is a decision of the central banks. Central banks now can decide the value of a currency interactively, and that is the question of monetary policy related to inflation. It is what happened during the First World War to facilitate war finance.

From 1919 onward there was an attempt to restore some the gold standard. The major problem here is that for the United Kingdom, to do that woud deflate its domestic economy, and push down wages. With policies associated with Winston Churchill, the standard was reinstated in 1925. Ten months later there is a general strike in the United Kingdom, and the attempt goes down the drain. There is a general strike because workers did not want to take deflation; they did not want to take the pay cuts. So the gold standard is history because of the general strike in the United Kingdom in the 1920s.

A new reality emerged, which is that no longer external monetary stability will prevail over domestic economic considerations and policies. There has to be some accommodation between external constraints and domestic imperatives. The basic political fact behind that is the rise of the labour and the socialist movement which led to wage rigidity, to the end of perfectly elastic wages. Because workers are now organized, they can organize and strike to resist pay cuts. Therefore, it is no longer the case then you can have a monetary system that works automatically by deflating prices and wages.

In practice, the gold standard was over in 1926. Formally it ended in 1930 because the United Kingdom goes off in 1931 under a labour government. In 1933 Roosevelt, in the middle of an international monetary conference that attempts to rebuild some kind of international monetary cooperation, he announces that the United States is not going to be playing the game because he doesn't want to tie his hands by tying the value of the dollar to gold. He wants the external value of the Dollar, the exchange rate to float according to the vagaries of his domestic economies.

Again that corresponds to the collapse of the international trading system in the early 1930s. There is one date that marks the reversal of that trend, and that is 1936 on the tripartite agreement between the United States, the United Kingdom and France. That is the first attempt to restore some kind of international monetary system based on active cooperation between central banks. Central banks from now pledge to help each other, counteract outflows of gold and money in order to stabilize exchange rates between the major currencies that make up the world economy. The new hegemon The third stage in the history of global capitalism is the stage called Embedded liberalism after the one of the required readings for this week by John Ruggy. Embedded liberalism is a term designed to convey the fact that the operating principle of this stage of global capitalism was a way to accommodate the imperative of external stability and the imperative of domestic policy autonomy. The major shift takes place after 1947 with the advent of the Pax America and the replacement of the previous hegemon before the First World War, Pax Britannica. During the second half of the 1930s and the 1940s, liberal internationalism prevails over isolationism and protectionism in the United States. Just at the same time as in the 1930s, American industry turned to free trade, converts to free trade, and the Republican Party gradually also beacme a pro-free-trade position. Why is it so? That is because during the Second World War, most of the sectors in the American economy internationalized, and they develop activities with important sources of profit abroad. Therefore they have a stake in the way the international economy works, and they want the Americans state to play which is a stabilizing role in order to make sure that their investments and markets abroad are safeguarded. The United States promotes multilateral liberalization in trade and financial flows. It keeps its domestic market open for its allies, and that is a significant feature of the few decades following the end of the Second World War. It becomes a source of international investment for construction in particular in the late 1940s and the early 1950s and in particular in Europe and Japan and Korea. It stabilizes the international economic system by providing finance and creates space by doing so to reconcile external imperatives and domestic policy autonomy across the world. But just as the United States is doing, there are vast chunks of the world that stand aside. Those are the so-called second and third worlds. The second world is the world under the domination of the USSR and China after 1949. The third world is the former colonial world that will, later on, give rise to the non-aligned movement in the group of 77 in the United Nations. Those states pursue inward-oriented industrialization and development. In the case of Latin America and Asia and particular India that takes the name of input substitution industrialization. To a large extent, ideologically, this is a return to prescriptions that derived from mercantilist thought, in particular from the thinking of economic nationalists like Alexander Hamilton and Frederick List. The idea is that to develop industrial capacities to develop technological capacities, you have to see a lot of yourself from the world economy. In order to keep out the imports of more advanced countries that prevent your own industry from acquiring those capacities and developing its own economies of scale, you have to reserve the domestic market to your own industrial firms. In those cases in the second and the third worlds, the shift towards neo economic nationalism goes hand in hand with the political victory of urban classes, industrial capital, intellectuals the industrial working classes over landowners. Those were the forces that dominated Latin America before the 1930s, and those were no longer the forces that dominated Latin America after the 19th. Same goes before India. Trade How did multilateralization in trade play out? The United States promoted the setting up of international organizations to promote multilateral trade liberalization. The original idea was to have an International Trade Organization. There was a treaty that begun to be negotiated, but it filtered in 1948 because the United States Senate refused to ratify the charter of the International Trade Organization. That amounts to the continuing influence although in the decline of protectionist and isolationist currents within the United States. The United States ratifies the UN charter, ratifies the IMF charter, the world bank charter. That is an isolated victory for the protectionists. At the same time as the ITO fails, the GATT takes shape. It is not a formal organization, it does not have formal rules, it does not have arbitration panels, it does not have all sorts of instruments standing to some limited extent above the sovereignty of national states. It is a forum for multilateral negotiation where liberalization takes place. It is the answer to the WTO, which is the ITO reason from its ashes and set up in 1995. And within GATTS are organized a series of rounds of trade liberalization The important thing is that the early stages of multilateral trade negotiations in the voices the 1950s the 1960s and even the 1970s are mostly, and that is one of the reasons why they are successful, negotiations between the United States and Western Europe, and to a lesser extent Japan. In particular, after the treaty of Rome comes into effect in 1958, those negotiations until the Uruguay round are mostly a match Between Washington and Brussels. Multilateral trade liberalization is organized along a set of norms and rules that are set to guide the way in which international trade corporation is to take place. There is gradually liberalization. The United States does not push for a total elimination of tariffs and other barriers to trade. However, it promotes a gradual liberalization because it recognizes that to abruptly liberalizecan stimulate resistance to trade. Another important rule is the rule of non-discrimination and the most favorite nation rule. It is the idea, for example, that if the United States lowers tariffs for the United Kingdom for inputs, it has to do the same across the board for all other trading partners in the system. Therefore, it is the idea that there has to be liberalization across the board and not simply preferential trade liberalization. There are several safeguards against stabilizing effects of trade liberalization. The norms of the system allow countries to reinstate barriers to trade, to close up their economies temporarily if the effects of liberalisation result in political and economic destabilization. That is the theory, in practice things fold out differently. To a large extent, it pans out differently. Why is that so? That is mainly because the most important trade liberalisation effort during the embedded liberalism stage is preferential in nature and not multilateral. That is the setting of the European customs union progressively in the 1950s and the 1960s. That is the origins of the European Union of today. It is important to realize that the setting of the customs union in Europe in 1957 goes against the spirit of the rules of the system. Because it is a preferential trade agreementn it is preferentially broilization, and so it creates trade diversion, and it is to the detriment of American exporters. And American exposes to Europe actually oppose the customs union. Mostly they oppose it because they know that they are going to lose out. But the United States allows and promote that kind of liberalization because it sees liberalization of trade within Europe as a key plunk very construction of the Western European economy. That takes precedence over multilateral liberalization. Most importantly, the customs union in Europe sets a precedent for what is going to come in the next stage, namely from the early 1980s a wave of preferential trade agreements. That becomes much more important in terms of the volume of world trade that they concern than multilateral liberalization will ever Since then. In a way, the system promotes one thing in theory, and, in practice, does something different. Investment There are two aspects to this. One is the way infrastructural investment in the developing world is going to be financed from now. It is no longer done through private funds and bank lending done from London and New York. It is to be done by public credits extended by international organizations or the United States Treasury. That is the origins of the World Bank. The international bank through construction and development that is set up precisely to fund infrastructure project in Africa in Latin America in Asia and so on.

Along with that in the same vein, there are American initiatives for reconstruction in Western Europe and Japan. That is the Marshall Plan and its Japanese equivalent introduced in 1947. A functional equivalent to those plans is the boost to the Korean economy that comes out of wars spending during the Korean War in the Korean Peninsula in the 1950s.

To a large extent, the origins of what later on was to be called the western European economic miracle, the Japanese economic miracle, the Korean economic miracle, have to do with the fact that early on the American government decided to fund major investments in infrastructure in those countries to provide them with a platform on the basis of which economic development was going to take place in its allies.

The other important trend is the culmination of the shift away from the hub and spoke structure of the classical era and towards the year of multinational enterprises. That' iss a trend that begun in the 1920s with American corporations investing in Europe and to much lesser extent in Japan, but mostly Europe.

That trend comes matures during the fifties and seventies. There is a pattern for interactive investment in which investment between developed countries largely dominates in terms of the volume of investment and takes place in global countries. Between 85% to 90% of foreign investments during the embedded liberalism period are done between developed economies and no longer between north and south, no longer between advanced and developing countries.

American car manufacturers invest in Europe and European car manufacturers a bit later begin investing in the United States. So it is a deeper form of economic integration than integration that takes place through trade. It has a major impact in the 1970s, from the 1970s onwards in terms of the resistance of the global economy too. Nevertheless, it is a fundamental shift. It is the most important developed shift change in the way global capitalism operates during the 20th century.

There is an exception to this trend. The second and third worlds shun incoming for indirect investment from the United States, Europe and Japan.

cahart 1 :12 :58

if you look at the chart for expropriations of foreign companies, they pick In the 1970s? The 1970s is the time when the attempt to take over for investments is at its highest and so the equivalent attempt to keep out for investment is also at its pick. Money That is probably the most well-known feature of in better liberalism because the pre war international monetary system was thrashed out at the Bretton wood conference in New Hampshire in the United States in 1944, so just before the war ended. It embodied a consensus between American and United Kingdom policymakers in the persons of John Mayer Keynes and Harry Dexter White for the United States.

On the need to reconcile the drive for the liberal global financial system, but also domestic policy autonomy, they disagreed on the details and in particular on how much the hegemon would have to do to stabilize the system. Keynes wanted the hegemon to do everything it could to stabilize the system by providing liberal countervailing finance to countries whose money was not the dollar. White was not very keen on that and wanted to limit the extent to which the United States would have to intervene. He wanted to limit the extent to which the international regime would force the United States to intervene in cases of financial destabilization and financial crisis.

The international monetary system creator Britain Woods was a revised form of the gold standard in that the dollar's value to gold was fixed and the value of all other currencies was fixed to the dollar. It was a system where the dollar was as good as gold, and by extension, countries did not have to hold gold, it was enough for them to hold dollar to know that they had stability. But obviously, that held as long as the dollar's value was packed to the gold and had an anchor and it wasn't allowed to freely float up and down as would happen from the 1970s.

There were fixed rates between national currencies, but they were adjustable. That is another major difference with the classical gold standard. It is that countries agreed that within the International Monetary Fund (IMF), they could negotiate between themselves the adjustment of exchange rate values to facilitate adjustment of the domestic economies through the exchange rate.

Another major feature was countervailing finance. The idea that if there was an outflow of capital in countries that suffered the dollar shortage the IMF and the United States Treasury would provide dollars to the country experiencing the capital outflow in order to neutralize the effect of the capital outflow. In a way, the United States treasury was pledging to fight the speculators by annulling the effect of capital outflow in particular from Western Europe.

The third major feature was capital control. IT is the idea that in countries could just refuse to accept capital outflows, and they could simply tell the speculators that their money was captive and then they would not continue to be held in the domestic banks and it was an administrative block to the free movement of capital across.

And Keynes maintained that capital controls were an essential feature of the system and they had to be held in place for as long as necessary in order to stabilize international monetary systems. Probably capital controls is the key feature that characterizes embedded liberalism, the fact that you both had a gold standard and at the same time you had capital controls.

The IMF embodies these set of rules, and New York became the centre of international finance.

That was being better liberalism stage, and that stage broke down in the 1970s. The breakdown of the embedded liberalism stage ushered in the stage of the second globalization, that is still underway.

The second globalization

Geopolitical developement The same developments that were at the basis of the development of international political economy as an academic discipline were also at the basis of the birth of the liberalism stage and the beginning of the second globalization namely the relative decline of American hegemony in the 1970s.

Apart from boots and apart from the United Kingdom, most other major economies in the world economy grew more quickly than the United States in the 1950s in the 1960s. From a situation where the United States share of industrial production was around 50% at the end of the Second World War, that came down to about 30% in the 1970s, and the share industrial production of Western Europe and Japan went up by a lot and in particular of Germany in Japan the major enemies of the second world war.

The fact that crystallized the relative decline of American hegemony was the crisis of the dollar that began sometime in the 1960s culminated in 1968 and 1971 and became an open feature of the global economy in the 1970s with the policy of the American administration of letting the dollar float and letting it depreciate that became known as the B9 neglect on the part of the American administration.

At the outset, many people said that American hegemony itself was over and that was the first major theoretical debate in international political economy. International political economy itself is to begin with a discipline that emerged as a debate about the future of American hegemony. Today there is a debate about the future of the distribution of power in the global economic system. Some authors debate the extent to which China is threatening American hegemony, and some authors used to debate in the early 2000s the extent of which the emergence of the European Union was a challenge to American hegemony. In the field of international political economy today, there is no debate over that most academic take it for granted that American hegemony has declined to some extent, but it is still very much around.

The new year began with the idea that the United States was losing ground and very quickly the very opposite happens because of the USSR collapse in the 1990s. During the same time in the 1970s and the 1980s, the second and third worlds opened up and decided to reintegrate global capitalism.

The 1990s, after the second and third worlds, stop pretending to pose a challenge to the American economy and reintegrate fully the global economy dominated by the United States. There was a lot of talk about the American unipolar moment, a moment of unprecedented dominance by one single grade power of the global system.

Another feature of the geopolitical picture that is important is the rise of China. And again, the rise of China begins with a realignment of China away from the Communist world and towards the United States with the famous visit of Nixon to Beijing in 1972 and the opening up of the Chinese economy to inward investment under Jenchao ping in 1979. That initial stage of the rise of China is synonymous with alignment with the US.

That lasts more or less until the early 2000s. From the early 2000s, there are growing discussion about how China poses a challenge to the United States, and there is debate within the US about revising its China policy from the quality of cooperation promotion shifting towards the quality of containment. To a large engine that geopolitically the main debate about the future of global capitalism today.

Ideologically Keynesian can easily goes on the decline from the 1970s onwards because it is accused of fostering inflation And because A greater proportion of domestic electorates becomes inflation of adverse. So before under the gold standard, it was mostly investors wealth-holders that were averse to inflation who were also the first sections of the electorate to be in Franchise in the 19th century before universal suffrage became the norm in the first half of the 20th century. But the vast majority of people before the second world war had a lower stake in the fight against inflation or state because they did not have financial assets.

That changes to a large extent after the 1950s because a good share of the working class develops savings of its own and so the share of the total population that has a stake in low inflation goes up. So the importance of fighting inflation becomes more important.

Along the relative decline of Keynesianism, Ideologically, there is the rise of what many people call neoliberalism or the Washington consensus as it was captured by John Williams, an economist in 1990. The basic strands of that theory is that the economy has to be privatized, has to be deregulated and he has to be opened up to international. Markets How does that play out in terms of the international trade system?

Initially, there is a wave of protectionism called the new protectionism in the late 1970s. At the time, again, one of the major debates in IP is the world global capitalism fracturing again, just like it did in the interval period.

But obviously this time it does not. That is the article by Helen Milner. And why doesn't that happen? It does not happen because of the rise of multinational production, The rise of multinational enterprises.

Justice and Cooperations have begun to spread across state borders and they have begun to have to earn a major share of the profits abroad either through export or production abroad itself. Therefore they have begun to conduct what economists called intra-firm trade. Because companies do that and they do that because it is more efficient to produce things now that way, they do not want protectionist barriers to go up because that obviously will interfere with their intra-firm trade and will raise costs and to manage profitability.

The 1970s see a lot of trade liberalization. There is a new GATT round that is of multilateral trade liberalization that is carried through. If you look at the share of exports in international trade grows more quickly than the international economy does, so the share of international trade in international economic activity goes up. So the new protectionism is a dog that does not bark. That provides the proof in the early 1980s for international political economy theorists, but something different is going on in global capitalism and that this is a different period to the interiors.

Liberalization is also spurred by the fact that less developed countries abandoned input substitution industrialization. That happens first in Eastern Europe that opens up gradually most important in Poland and Hungary but then also Latin America who start importing capital from abroad to fund the growing share of inputs in its economy and gradually abundance IESI and turns towards the global market.

Before the way trade liberalization is going to deepen during the stage of the second globalization is not through multilateral trade liberalisation. It's not mostly through multilateral trade liberalization, but through the new regionalism through the spread of preferential trade agreements, just as the customs union was set up in Western Europe in 1957.

And importantly the United States itself turns towards preferential trade agreement in the early 1980s. Until the late 1970s the United States itself refused to enter into preferential trade agreements without a countries because it did not want to undermine the norms and rules of the international trading system that he had promoted.

From the 1980s onwards as the international position of American industry comes under threat from the Japanese and the Western European challenge, the Americans shift gear and adopted regionalism themselves. There is a series of agreements that lead up to the NAFTA most importantly the first one is the Canad-United States free trade agreement in the 1980s that is later joined by Mexico after Mexico opens up during the 1980s. In 1994 you have NAFTA that comes into being. It's the opposite of the Spirit of multinational trade liberalization promoted by America in the 1940s and the 1950s.

There is Mercosur so the fact that Latin American countries bind together in a preferential trading block. The deepening of the European Union and a debate in the late 1980s and in the early 1990s about the rise of fortress Europe which is the fact that as Europe is gradually coming closer together that is going to be detrimental to American export to the European market.

Japan pursues its own network of preferential trade agreements that mostly are done by laterally instead of bringing its trade partners into a block. Japan signs a series of treaties with individual countries in the East Asian basin.

There is Asean which is the bloc of developing countries in the Southeast Asian region: Thailand, Malaysia, Korea, Indonesia, and the Philippines that are high growing economies at the time, Taiwan and Hong Kong.

The global system training system is characterized by competitive liberalisation. That is a term coin by an economist called Fred Buxton that was very influential in Washington in the international trading policy. The difference here is that there is competition just as there was competition in the interval period. However, this time competition does not spur economic nationalism and an inward trend but competitive liberalization. The major powers the EU Japan the US and as time goes by China compete with each other for preferential access to third markets so that their own multinationals can better position themselves in the global competitive struggle that takes place.

Another feature of the trading regime is that it takes the shape of deep liberalization. That often comes along with bilateral investment treaties. It is no longer just about tariffs. It is also about so-called non-tariff barriers. Why? Because trade is coupled as it wasn't before with production. so it's important for multinationals to know that not simply will they be able to import and export out of given market commodities but also that they can organize production within those markets without fear of interference from the local government with their property rights.

Chart 1 :33 :29

This chart shows the evolution of trade agreement in the world. We see the spike the tremendous spike in the number of such agreements from 1991 onwards.

This is the kind of thing that the GATT and later on the WTO were sets up to prevent. That's the key thing. Investment Let start with competition to attract capital. The abandonment of input substitution industrialisation meant that the source of industrial investment for developing countries now become the world market and no longer the domestic economy. The developing countries have to compete now to attract capital just as they used to compete in the gold standard era, in the classical era to attract capital. But this time it is different because now they are competing to attract industrial investments they are competing to attract multinational enterprises in the manufacturing sector, in the high technologies sectors, so that those companies produce their goods in developing markets and no longer in the advanced markets. That is the policy of setting up special economic zones in China, in Mexico, the maquiladoras, in Southeast Asia and providing preferential fiscal treatment to multinational companies and so on and so forth. All of this kind of thing akes the shape of bilateral investment treaties that are mostly signed between countries that are the source of multinational investment, The US European Union Japan and growingly China, and countries that wish to import capital. Those countries sign bilateral investment treaties in the same way that in the classically are the adopted the gold standard, there is a good housekeeping silver approval as a guarantee to foreign investors. if they bring their money into the host country, their investment will be protected. A big push in that direction came in the late 1970s and the 1980s With Latin America and Eastern European countries, and then in the 90s again, there was a big push into Central and Eastern Europe after the collapse USSR. Along with that comes to decline and the disappearance of expropriations of multinational enterprises in LDCs. From the late 1980s onwards the number of IIAs has soared. Mostly during the 90s because the 90s were the main time when countries were competing to attract capital. The last thing consequence of this is that there is now a web of legal arrangements Not multilateral but preferential legal arrangements that protect the rights of investors across the globe. From the point of view of international investors BITs are the functional equivalent of colonialism. It is not to say that the system is neocolonial, it is just as colonialism in the past was there to safeguard the property rights of investors from the advanced world today bilateral investment treaties play the same role. money

The Bretton wood system collapsed; the revised gold dollar standard collapse is 1968-71. Why 1968 1971 because in the late 60s, it becomes obvious that the stock of dollars held abroad is greater than the in value than the stock of gold held in the United States. Therefore if all of the holders of dollar assets abroad try to redeem their holdings for gold, the United States goes bust.

That is what France attempted to do .it cashed in on its gold holdings, and that precipitated the delinking of the dollar from the gold in 1971. no one is talking about a gold standard except some libertarians in the fringes of the Republican party in the US are talking about a gold standard today.

What happens is that the dealing of the dollar from the gold, actually reinforced the position Of the dollar in the international monetary system. The dollar was as good as gold before. But now the dollar is as good as the dollar. That means that because the dollar is so important international economic transactions, the United States enjoys an exorbitant privilege in the sense that it can print dollars and pay for whatever it needs to import and suffers no consequences.

The United States is today the only country in the world for which there is no contradiction between external stability And domestic autonomy. The United States can pursue the domestic policies it wants, and that has a negligible impact on the value of the dollar. It was a way to understand the financial crisis happened in 2008. There was an inflow of capital into the US economy just as the giants of American finance world were collapsing.

Just as there was a major crisis in the heart of the system investors believed that the most the safest of assets was still the US government that and so the dollar went up. Whereas in the past, any sensible person would be fleeing the dollar. In any economy in which there was a crisis of that scale would have suffered a collapse of its exchange rate. For the dollar, it was different, it was the other way around.

What took the place of the Breton wood system was ad hoc cooperation between the US and its allies. The bond summit in 1978, the plazza accords in 1985 and the louvre accord 1987 were the allies of the United States agreed basically to adjust their economies in a way that would help the US stabilized the value of the dollar. Why did they agree to do that? Because they wanted the daughter to stop depreciating and they wanted the dollar the United States to stop exporting dollars because that fueled inflation in Europe and Japan.

One major epiphenomenon of the breakdown of the Bretton would system was European monetary unification. Initially the European attempted to restore the Bretton wood system, That is the period between 1971 and 1973 with the Smithsonian Institute agreements. That fails because the United States does not care to restore the link between the dollar and gold. So what the Europeans do is that, to begin with, they restore a regional Breton, a European monetary system. Then, later on, to make sure that arrangement is stable, they replace fixed exchange rates with a central bank and a single currency, and that is the euro that you have today.

Probably the most important feature in terms of the international global financial system is the lifting and capital controls. Universally during the 1970s and the 80s countries lift capital controls In advance countries. In the 90s the process is accomplished in most of the developing worlds with the notable exception of China. In China, there is still no free convertibility of the local currency, you have to get administrative agreement to exchange your Yuan for dollars euros or whatever still in 2019.

The last feature of the global financial system is that just as the Bretton wood system breaks down and international financial flows grow exponentially at a much greater pace than the international economy or the international trading system.

That comes with increased financial fragility across the globe. So you have a wave of financial crises because investors can shift money across jurisdictions. Very quickly also because of technological developments with the rise of ICT technologies and so on.

So you have three waves of financial crises: the Latin American debt crisis of the 1980s, the East Asian crises of the late 1990s, And then the crises comes to the heart of the system, and that is the global financial crash after 2008 and the Eurozone crisis of the early 2010s. That's the result of the fact that global finance is no longer constrained by capital controls and so many holders can shift vast amounts of money across borders very quickly.