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BRICS and the Global Financial Order
- Liberalism Contested?
- Johannes Petry, Andreas Nölke
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- 31 October 2024
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19 - Investor–State Dispute Settlement: Business as Usual or Moratorium?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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- Bristol University Press
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- 13 October 2022
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- 10 May 2022, pp 120-124
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Summary
Mechanisms for the settlement of disputes between foreign investors and national governments are among the most controversially discussed topics of contemporary investment and trade agreements. Opposition to the latter often is primarily based on ‘investor–state dispute settlement’ (ISDS) issues. During the coronavirus pandemic, hundreds of non-governmental organizations (NGOs) have asked for a moratorium on ISDS operations (S2B Network, 2020), so far in vain. Instead, informed observers expect a major wave of new ISDS claims triggered by the crisis. Why does the pandemic raise additional concerns about ISDS? Can we continue with this practice or do we need a moratorium?
Political Economy and ISDS mechanisms
ISDS mechanisms have emerged since the 1950s, triggered by the increasing amount of international investments. Before their emergence, foreign investors had to rely on two unattractive options when they considered themselves to be treated in an unfair way by host-country governments. One option is to make use of the court system in the host country, but the latter often was considered to be biased in favour of its national government. The alternative option for companies is to appeal to their home-country government to take up the issue with the host-country government, but these diplomatic channels were also of limited usefulness, given that investment concerns often ranged among low priorities if weighed against other foreign policy issues.
The establishment of independent dispute settlement mechanisms originally was targeted against newly independent governments of the Global South after decolonization that threatened Northern companies with expropriation; for example, in natural resource extraction sectors. From the millennium onwards, however, ISDS cases have become an increasingly salient issue between multinational corporations and governments in the Global North. In part, this was because of the movement towards remunicipalization of local services, such as energy and water supply, that previously had been privatized, also to the favour of foreign multinationals. In part, this was triggered by environmental or health policy reversals, such as the German ‘Energiewende’ that demanded a shutdown of nuclear reactors, again partially owned by foreign companies such as the Swedish Vattenfall. Correspondingly, concerns over ISDS have become a central issue in major trade negotiations, contributing substantively to the failure of the Trans-Atlantic Trade and Investment Partnership (TTIP) and the crisis about the ratification of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU.
12 - Corporate Governance: Public Responsibility or Shareholder Value?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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- 13 October 2022
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During the coronavirus crisis and the related recession, many governments have initiated massive public rescue operations for business, given that the latter was collapsing in sectors such as tourism. A prominent part of these operations was the increase in public control over companies. Increasing public control took different forms. Often, this meant increasing public (partial) ownership, directly via state bodies or indirectly via public banks or sovereign wealth funds. In other cases, governments introduced regulations with regard to preventing the takeover of prized companies by foreign investors. Government financial support measures during the crisis sometimes have led to controversial discussions about the behaviour on the side of business, in particular when the latter at the same time have used share buy-backs, provided dividend payments to shareholders or paid a massive bonus for top management. Critics argued that companies were using taxpayers’ money for the enrichment of company owners and top management. Companies, in turn, defended the practice by highlighting their obligations towards shareholders or the need to retain top talent. Will post-corona capitalism focus on shareholder value or on the public responsibility of companies?
Corporate governance in different models and phases of capitalism
We can explain the competing rationales behind this controversy by linking them to various themes in Comparative Political Economy; namely, the discussions on financialization and on corporate governance in different types of capitalism (Clift, 2014: 230–56; Menz, 2017: 146–77; Vermeiren 2021: 118–46). The process of financialization of capitalism has unfolded since the late 1970s. Financial markets, actors within these markets and a financial market perspective on economic processes increasingly became important during the last four decades, affecting many aspects of the economy (see also Chapter 8, Chapter 13, Chapter 17 and Chapter 31).
In case of corporate governance, financialization means the rise of ‘shareholder value’ conceptions. These conceptions demand the maximization of short-term returns for the owners of the firm. In order to implement this target, companies have different instruments at their disposal. One typical instrument is share buy-backs; that is, companies using retained earnings or taking up a loan in order to buy their own shares. This will increase demand for the latter, drive up their notations on the stock markets and make existing shareholders richer. Another typical instrument of shareholder value capitalism is stock options.
28 - EU Economic Governance: Erosion or Integration?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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The coronavirus pandemic was a novel challenge for the EU. The purpose of combatting a pandemic was not part of its process of evolution. Still, many observers – both inside and outside the EU – assume that it should be able to play a major role in fighting the pandemic and the subsequent recession. The core question with regard to the EU – as always – is whether it leads to more European integration or rather to an erosion of the Union.
EU economic integration and International Political Economy scholarship
Over the decades, European Union Studies has emerged as a major research field of its own, with a multitude of specialized journals and academic associations. Still, from an International Political Economy perspective the core question still is to explain why countries are willing to pool a substantial amount of sovereignty in order to tackle common challenges (Balaam and Dillman, 2014: 295–7; Ravenhill, 2020: 159–61). The EU is by far the most impressive case of sovereignty pooling in the global political economy. Whereas the European Community during the 1950s was a group of completely sovereign states with limited cooperation in selected issue areas, the EU during the 2020s not only encompasses nearly all issue areas, but also holds supranational competences over many fields of economic policymaking.
To explain this development is the task of the classical theories of European integration, although the latter are only a small part of EU scholarship. Again, there is a whole range of theories that seek to explain why EU sometimes moved on with allocating new powers to Brussels and why they sometimes failed to do so, notably including theories of Critical Political Economy (van Apeldoorn and Horn, 2018). Still, the most widely used
distinction still is between intergovernmental and neo-functionalist theories of European integration. Whereas the former highlights the importance of the preferences of the (powerful) EU member states, the latter argue in favour of the independent agency of European-level actors such as the Commission (or the ECB) and the driving force of transnational societal actors (mainly business), triggered by the need to solve cross-border problems.
9 - Fiscal Policy: Absolute Ceiling or No Limits to Deficit Spending?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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During the coronavirus pandemic, most governments have taken up additional public debt. As governments faced a pressing demand to increase public spending within very short periods, the only available source of funding was borrowing. One of the core questions with regard to the economic policies in post-coronavirus capitalism is how to deal with this debt level. Shall we bring the level of public debt – usually calculated in relation to gross domestic product (GDP) – quickly back to pre-corona levels, shall it remain on the increased level or shall we even increase it, in order to fund post-crisis restructuring?
Fiscal policies in different growth models
The discussion on growth models in Comparative Political Economy informs us why governments have different propensities to rely on debtbased funding. This discussion goes against claims that there is only one generally desirable level of public debt – an issue that has been a focus of contention among economists and politicians for decades. Conservative economists call for an absolute ceiling of public debt (for example, less than something between 60 per cent or 90 per cent of annual GDP), in order to avoid a decrease of economic growth (Reinhart and Rogoff, 2010). They further argue that without such a ceiling economies would be instable (for example, with regard to international financial flows), governments would be under the pressure of interest groups to spend in their favour and later generations would need to pay for high public debt today. Left economists, in contrast, argue that there should be no limit to public debt, as long as countries have their own central bank and are not at the bottom of the international currency hierarchy (see Chapter 9). They do not find any evidence that rates of economic growth slows down if debt transgressed 90 per cent of GDP (Herndon et al, 2014). In their perspective, fiscal policies are at the centrepiece of the democratic process, play an important role for safeguarding low unemployment and governments need not worry about intergenerational fairness, as long as public debt is used for productive purposes (investment).
27 - China– US Struggle for Global Economic Hegemony: Contender or Incumbent?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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The coronavirus pandemic emerged in a historical situation where the political relations between China and the US, not only the two largest economies, but also the contenders for global economic hegemony, grew increasingly tense. The pandemic has put fuel onto the fire of this rivalry. While the US blamed China to be responsible for the emergence of the pandemic and for undue influence in the WHO, China used its early economic recovery to strengthen its ties to countries globally. How will the pandemic influence the balance of power between these two economies?
The struggle for global order and International Political Economy scholarship
During the last two decades, much International Political Economy scholarship has studied the emerging economic rivalry between China and the US, even if it did not yet find much reflection in the major textbooks. While the discussion during the 2000s mainly focused on the question whether the rise of China would be aggressive or peaceful, it increasingly turns to the question of the stability of the US-led liberal global order during the 2010s. During the first debate, the core contenders were ‘power transition theory’ and ‘offensive realism’ on the one side, arguing that the rise of China would lead to military conflicts, and liberal as well as constructivist scholarship on the other side, predicting that this conflict can be avoided, due to economic interdependencies and the socialization of China into a cooperative behaviour (Nölke, 2015: 657–8). The second debates focused on the challenges that China poses for the US-led ‘Liberal International Order’ (LIO). The latter order has been created by the West under US leadership after the Second World War, in order to contain the expanding Soviet Union. Core pillars were the support of free trade and of transnational capital mobility, as well as international organizations such as the WB and the IMF (and the more general principle of multilateralism); it also contained more political aspects such as the spreading of democracy and the support of human rights. Over time, it has increased its intrusiveness; for example, with regard to the promotion of human rights, the supranational order of the International Criminal Court or the structural adjustment programmes of the WB and the IMF (Kreuder-Sonnen and Rittberger, 2020: 5–8; Lake et al, 2021: 226–34).
22 - Global Health Governance: Intergovernmental or Private– Public Networks?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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With regard to global governance, the most striking development during the coronavirus crisis was the decision of President Trump – withdrawn by President Biden – to leave the WHO, based on an allegedly too prominent role of the Chinese government in this organization. Later during the pandemic, limitations of global health governance became an issue because it turned out to be very difficult to safeguard an equitable global distribution of scarce vaccines and global health institutions were unable to prevent ‘vaccine nationalism’. For some observers, finally, global health governance has been fundamentally flawed for many years, because of the prominent role of private actors such as the Gates Foundation. Do we need to return to the intergovernmental system of the WHO or should we proceed with giving a major say to private–public networks?
Concepts of global economic governance
The study of global economic governance provides us with ample analytical instruments in order to put these developments in place. For uninformed observers, the WHO may look like the powerful global authority on all health issues. International Political Economy scholars, however, are well aware that the power of the WHO – like that of all UN organizations –is severely circumscribed.
International organizations such as the WHO fulfil two main functions. On the one side, they act as meeting points of national governments for the development of common rules and activities. On the other side, the secretariats of these organizations have important functions for the impartial collection of data, research and recommendations on global best practices. In both cases, they rely on the cooperation by its member governments (O’Brien and Williams, 2016: 300–1. International organizations only very rarely have power over its member governments. This usually is only the case if they have a huge amount of financial resources and member states are in financial distress, as for example in the case of structural adjustment programmes designed by the IMF and the WB during the 1980s and 1990s (O’Brien and Williams, 2016: 303–4). As we shall see, the WHO has been crippled by conflicts between its member governments and has been starved financially, thereby limiting its abilities during the last decades.
While the different priorities of Northern and Southern governments regarding UN organizations is a well-established phenomenon, it has recently been complemented by another ‘North–South conflict’.
Part III - Domestic Institutions of Capitalism on the Supply Side
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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Comparative Political Economy does not only study country variation and macroeconomic policy issues on the demand side, but also institutional differences between countries on the supply side. The predominant approach here is called ‘Comparative Capitalisms’ (Clift, 2014; Menz, 2017; Nölke, 2019b). It analyses the differences between the economic institutions of countries at the company level. The focus is on country-specific comparative advantages for companies with regard to certain products and services that go along with these institutions. Among the most important company-level institutions are: the system of corporate governance (that is, who owns and directs a company); the financial sector (as the source for funding); industrial relations (that is, the relations with workers); and training systems, innovation and competition policy.
As we shall see, the coronavirus crisis has substantial implications with regard to each of these institutions. In order to stabilize companies during the crisis, many states have taken on a more prominent role within corporate governance; for example, via (partial) state ownership (Chapter 12). In contrast to the GFC in 2008/09, this crisis did not emerge in the financial sector. Still, the financial sector has contributed to deepening the crisis, particularly via private equity investments in the health sector (Chapter 13). While the crisis led to a short spring of ‘covid corporatism’ – that is, a close collaboration between companies, unions and the state – labour unions did not play a crucial role in economic reconstructions and may also be sidelined in their role within vocational training systems (Chapter 14). In terms of innovation, the pandemic stimulated two systems in particular: on the one side, it demonstrated the important role of state support for innovation (for example, with regard to vaccine development); on the other, it highlighted the useful role of frugal innovation (Chapter 15). Finally, the pandemic raises severe issues for competition policy, both with regard to the massive utilization of state aid and to the market power of US digital behemoths (Chapter 16).
Part V - Anthropocene Capitalism
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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The greatest challenge of our generation is global warming. Given that the latter process is closely connected to the expansion of industrial capitalism, it has become an important topic for International Political Economy. Core topics include the linkage between economic globalization and climate change and the role of business in negotiations on climate change limitation (O’Brien and Williams, 2016: 250–8; Dauvergne, 2020). Moreover, International Political Economy has started to engage with the more general debate between ‘ecocentric’ and ‘technocentric’ approaches to sustainability, particularly on the feasibility of planned ‘degrowth’ in order to overcome the global environmental crisis. The degrowth idea also moves against the global agribusiness food system and pleads for a return of agriculture as local community support.
The coronavirus pandemic has touched on all of these topics. It has demonstrated the close linkage between economic growth and climate change – pollution was heavily reduced during the core recession – and has given some indications on the salience of the climate change agenda during the period of economic reconstruction (Chapter 24). It has also brought the prospects for degrowth forcefully to the table and has given us an opportunity to gauge the attractiveness of the degrowth concept within society at large (Chapter 25). Finally, it has highlighted the dangers of a further expansion of the global agrifood system; for example, with regard to the frequency of zoonotic diseases and the ability of local production to support the need of the local population in a situation of crisis (Chapter 26).
33 - Conclusion: Competing Visions of Capitalism and their Perspectives
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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What will post-corona capitalism look like? We don't know. It is the core contention of this book that important political choices about the future of capitalism lie ahead. It has described some 30 of these choices and the alternatives available. The next years will demonstrate which of the alternatives will be realized and which not. This will be the outcome of political struggles and the book hopefully can contribute towards making these struggles more democratic, by highlighting the alternatives at hand. Still, this book has also assembled empirical evidence with regard to the likelihood of these alternatives, based on developments during the first two years of the crisis. While this is still very early in the process, we can nevertheless summarize broad tendencies.
Competing visions of post-coronavirus capitalism
In order to reduce the complexity of a long list of individual observations, this chapter will allocate the latter to a small number of alternative visions of future capitalism (see also Dummer and Neuhäuser, 2020). The identification of these visions follows the alternative options discussed in some individual chapters. The book distinguishes five different options for the near future of capitalism. Since space does not permit for a long description of these models, we can link the latter to recent governments that have pursued related policies (where available):
• Classical liberal capitalism: The focus is on a central role for private business, the preponderance of shareholder value and unregulated markets (laissez-faire), in order to maximize the productive potential of capitalism. Traditionally, this vision of capitalism has been pursued in the US (Republicans before Trump) and the UK (particularly by Tory governments under Thatcher).
• Cosmopolitan technocratic capitalism: While sharing some concerns with classical liberal capitalism, the focus here is on managing global capitalism in a frictionless way, which includes some form of regulation and often the delegation of authority to non-majoritarian institutions, both domestically (for example, central banks) and internationally (for example, the IMF). This is a vision of capitalism that can be found with many global organizations, but also within EU institutions and the German government (during the Merkel chancellorship).
23 - Foreign Debt in the Global South: Permanent Write-off or Temporary Relief?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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During the coronavirus crisis, governments have raised massive debt in order to combat the health emergency. However, many countries of the Global South already had high levels of public debt before the coronavirus crisis. Correspondingly, we may witness a new global debt crisis soon. Led by the G20, the IMF and the WB, creditor governments have reacted to this problem by temporarily relieving low-income governments from debt service. The question is whether this is enough or whether they have to permanently write off some Southern debt. International Political Economy scholarship provides us with a number of analytical instruments to tackle this question.
Why do governments get into debt crises? Between original sin and export competition
Taking up public debt is not necessarily a bad idea for countries of the Global South. Processes of economic catch-up often require huge amounts of public funds, often much higher amounts that are available domestically via tariffs, taxes and other public sector sources. Correspondingly, governments sell securities and bonds in order to raise additional resources. Depending on the income group of the country, governments address different sources for foreign debt. Upper-middle-income countries usually have a good access to international capital markets; that is, private creditors. For lower-middle and particularly low-income countries, both international organizations – in particular, multilateral development banks such as the WB – and Northern governments (via bilateral cooperation) are more important sources of loans.
In most cases, debt is issued in the currency of the debtor country. Other governments, however, have denominated their debt in foreign currencies (for example, the US dollar), due to the need to pay imports with these currencies. Moreover, the interest rates they have to pay for debt issued in, for example, US dollars is considerably lower than for debt in their own currency, because creditors do not have to face the risk of a devaluation of their credits denominated on the debtor country. The latter risk, however, is shifted to the debtor-government side. If the currency of the latter depreciates against, for example, the US dollar, its debt service (calculated in national currency) becomes much heavier. Serving huge foreign-denominated debts with a strongly depreciated currency puts a heavy strain on these economies. Due to this risk, taking up debt in foreign currency is called ‘original sin’.
8 - Monetary Policy: Democratic or Technocratic?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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During the coronavirus pandemic (as during the Global Financial Crisis), central banks were instrumental in stabilizing the economy via highly expansive monetary policy. Arguably, central banks were at least as important as governments for overcoming the economic crisis. The range of their tasks and instruments has become broader than ever before in history. This raises crucial questions about the future of central bank independence. Can we continue considering central banks as neutral, technocratic institutions or do we need more democratic accountability via a stronger involvement of parliaments in monetary policy?
Monetary policy in different national growth models
The alternative options of central banks as technocratic or political (and therefore to be guided by parliaments) is closely linked to the preferences with regard to the direction of monetary policy. A conservative monetary policy prefers independent and technocratic central banks with a narrow mandate on the fight against inflation, a heterodox monetary policy gives central banks a whole range of targets, thereby increasing the need for democratic control, in order to adjucate between different targets. These preferences vary both between countries and over time.
Countries with different growth models have different preferences with regard to monetary policy (Vermeiren, 2021: 86–9): export-oriented growth models such as the German one clearly prefer a very strict (‘conservative’) central bank that focuses on keeping inflation rates very low. A low inflation rate helps in price-based export competition. Even in the case of an economic crisis, this central bank would not lower interest rates in order to stimulate the economy, given that export-led growth models seek additional demands from foreign, not domestic, markets. Domestic demand-led growth models, as for example in the US, the UK, France and the Mediterranean, in contrast, favour a much more expansive (‘heterodox’) central bank that fights recessions and unemployment via interest rate cuts or the utilization of even more heterodox instruments (to be discussed later). In the Global South, a third ‘developmental’ perspective on central banks with a focus on extensive administrative instruments to control banking can be found (Krampf, 2013). Some economies in the Global South also suffer from ‘monetary dependency’; that is, they are unable to pursue an independent monetary policy (Koddenbrock and Sylla, 2019).
List of Abbreviations
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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4 - Reproductive Work: Positive Re-evaluation or the Same Old Neglect?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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The coronavirus crisis has led to an increased – although so far mostly symbolic – appreciation of (paid and unpaid) reproductive work traditionally dominated by women, such as care work (for the sick, but also for the very young and very old), education (home schooling) or food preparation. As people increasingly moved to work from home, the modern separation between the economy and the household has collapsed and therefore large parts of society have realized that this work is not only badly paid, but also often quite challenging or even outright dangerous. Correspondingly, we are hearing many calls for a positive re-evaluation of reproductive work after the crisis, even by mainstream politicians. Is this only temporary or does it lead to a permanent change with regard to the type of work?
Political economy and reproductive work
Political economy work on gender relations can assist us in answering this question. First, it points towards the fact that women do most of reproductive work in the household. Women spend upon average about 201 days of unpaid care work during a year, while men spend 64 days (Lokot and Bhatia, 2020: 1). Reproductive work often is ‘invisible’ in official economic data. Still it is as vital as the formal economy and indispensable for the survival of our societies. Moreover, the unequal distribution of reproductive work is not only a problem for equitable gender relations, but also has massive repercussions in terms of lost wages, social security benefits and career opportunities for those that perform the lion's share of this work. The pandemic has highlighted the importance of this work very clearly. Does it also lead to a more fair distribution?
Second, political economy work on gender relations highlights the deep institutional hurdles that have to be overcome in order to ensure a higher appreciation of reproductive work outside families (for example, in hospitals). Again, this work is mainly borne by women that constitute about 70 per cent of workers in health and social care globally (Lokot and Bhatia, 2020: 1). This work usually does not pay well and very often suffers from unattractive work conditions. In part, this stems from highly problematic social attributions that, for example, argue that this work does not require particularly high skills.
Part VII - Ideologies in Contemporary Capitalism
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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The study of broadly encompassing ideas on the changing nature of capitalism is not part of Political Economy textbooks, neither in its Comparative, nor in its International variety (although the latter always contain applications of theories from International Relations, such as Realism, Liberalism and Marxism). Still, these ideologies on the normatively preferred nature of capitalism allow us to create some order in the long list of individual observations assembled in the book, as an ‘early conclusion’. Three broad juxtapositions seem particularly useful to make sense of the changes triggered by the coronavirus crisis. The most obvious choice is between authoritarian and democratic capitalism – which model gains, which loses (Chapter 30)? Some three decades ago, most people shared the assumption that (successful) capitalism can only go together with democracy, but the rise of China and authoritarian tendencies in previously capitalist-democratic countries have cast this assumption into doubt. Moreover, a historical perspective demonstrates that capitalist systems not only differ with regard to their system of government, but also with regard to more liberal and more organized systems of capitalism. Again, the question is how does the coronavirus crisis affect these tendencies (Chapter 31)? During the last decades, finally, the rise of populism has pointed to another increasingly important juxtaposition in contemporary capitalism; namely, the one between communitarians and cosmopolitans. Here, the focus is not on the nature of the domestic system of government, but on the degree of openness to outside influences, with communitarians sceptical and cosmopolitans open. Does the pandemic lead to more international openness or rather to closures (Chapter 32)?
20 - Trade Policy: Liberalism or Protectionism?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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- 13 October 2022
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Even in a world of global production networks, trade policies remain important for capitalist economies. They regulate the conditions under which goods and services may cross borders; for example, by imposing tariffs or regulatory norms. Countries can choose more liberal or more protectionist policies. With the onset of the coronavirus crisis, several governments have implemented protectionist policies; in particular, by limiting the export of medical supplies. Moreover, we can observe increasing indications of a public discourse that turns against trade liberalization. Political economy approaches help us to identify the motivations behind these policies and declarations, as well as the consequences for the institutions of global trade governance. Should we continue on this path to a somewhat increased protectionism or move back to trade liberalism?
Trade policy and International Political Economy
International trade policies are the most established topic in International Political Economy scholarship. Each textbook features at least one comprehensive chapter on the topic; some, a whole series of chapters (Oatley, 2019). While there is a long list of trade policy instruments and institutional settings, as well as a great variety of theories on how to explain trade policies, the core issue always is the juxtaposition between free trade and protectionism.
Proponents of free trade claim that a specialization of countries based on their comparative advantages leaves everybody better off. While Adam Smith highlighted the importance of specialization for enhancing productivity due to economies of scale, David Ricardo demonstrated that trade can also improve overall welfare when one country has absolute advantages on the production of all goods and services. Modern trade theories added that this does not only relate to labour productivity, but also to factor endowments such as capital, land and labour. Correspondingly, some countries are supposed to focus on agricultural production and others on labour-intensive industries. Liberals despise protectionist measures because they limit overall welfare. Moreover, they assume that protectionist measures are put in place in order to increase the profits of individual companies, because these measures limit competition (O’Brien and Williams, 2016: 104–5).
Critics of free trade argue that the latter has strong distributive consequences. Some countries – and some groups within countries – gain much more than others. In particular, countries that focus on agriculture – or the exploitation of other natural resources – will always stick to that specialization if they adhere to free trade.
32 - Communitarian or Cosmopolitan Capitalism?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Post-Corona Capitalism
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- 13 October 2022
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Summary
Within days after the first victims of the coronavirus were identified, governments took decisions on a comprehensive closure of national borders and restricted flights. Particularly striking was the closure of borders within the Schengen Area of the EU, within which people were used to move freely on a daily basis for work and leisure. Accordingly, the ban on travelling freely within the Schengen Area had a radical impact not only on the EU economy but also on its identity. It was as if the pandemic pushed Europe back to its past: an area constructed of small nation states divided by real geographical borders (see Chapter 6 and Chapter 28). The ban on the freedom of movement of people within the EU was only the most extreme measure taken by governments that reminded us that the world is still made of territorial states and that the primary responsibility of governments usually is perceived to be towards the domestic population. Related measures included the ban on exports of coronavirus-related health products (see Chapter 2) or the focus on the rescue of national enterprises (see Chapter 12). We can order all of these observations by locating them in the struggle between communitarian and cosmopolitan ideologies of capitalism. Which of the two conceptions will have the upper hand in post-corona capitalism?
Communitarian and cosmopolitan models of capitalism
Like the immigration crisis in Europe and the US beforehand, the pandemic deepened the tensions between two sets of modern values. On the one side, we can find the cosmopolitan set of values, which is based on universal human rights, supranational integration and open borders. On the other side, we find the communitarian set of values, which perceives human beings as social animals and embedded in their local community, with a strong focus on the nation state as protector of the latter. In recent years, amid an acceleration of globalization, the cosmopolitan/communitarian divide cut through traditional cleavages, between conservatives and liberals on the one side and social democrats and socialists on the other. Correspondingly, the new divide transformed the ideological map in many societies.
The communitarian/cosmopolitan divide stems from Political Theory and later was applied to diverse (sub-) disciplines such as Party Politics and International Relations (Zürn and de Wilde, 2016; de Wilde et al, 2019).
18 - Foreign Direct Investment: Promotion or Restriction?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Book:
- Post-Corona Capitalism
- Published by:
- Bristol University Press
- Published online:
- 13 October 2022
- Print publication:
- 10 May 2022, pp 115-119
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Summary
Similar to other large recessions, the coronavirus pandemic has led to low valuations of many companies in distress. Foreign investors may utilize this situation for acquisitions. As we will see, this is not a hypothetical consideration during the coronavirus crisis. Particularly, Chinese companies were quite active with regard to foreign acquisitions. This leads to the question whether the government of the country with the target company appreciates this initiative (as a much-needed rescue operation) or rather harbours concerns regarding the latter (as sell-out of a national treasure). More generally, will post-coronavirus policies for the regulation of inward FDI rather promote or restrict the latter?
FDI policies and International Political Economy
FDIs refer to the practice that companies invest outside their home country. If they set up a completely new facility, this is called ‘greenfield investment’; if they buy an existing facility, this is called ‘brownfield investment’ (usually summarized under ‘mergers and acquisitions’). A second major distinction is between FDI proper and ‘portfolio investments’ – in the latter case, the focus is not on the control of facilities in other economies, but on financial investments. Of course, portfolio investments can morph into proper FDI, if the investor uses ‘creeping acquisitions’ in order to increase its shares of the target company until it acquires control of the latter (Das, 2021: 2). Although FDI (and trade) policies are closely related to the issue of global production networks (see Chapter 17) – they can either facilitate or restrict the latter – these policies warrant a treatment of their own. Put simply, governments decide about FDI and trade policies; companies decide – on this basis – whether they produce (or source inputs) in only one country or spread the production process across several national economies.
Although the debate on the advantages and disadvantages of FDI is not as extensive as the debate between free-traders and protectionists (see Chapter 20), it still has become quite comprehensive, usually with the implicit perspective of a government confronted with the option of inward FDI. Among the most important potential advantages of inward FDI range from the access to additional resources (both financial and technological), the mobilization of tax revenues and employment as well as the transfer of management techniques.
25 - Degrowth: Necessity or Fantasy?
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Book:
- Post-Corona Capitalism
- Published by:
- Bristol University Press
- Published online:
- 13 October 2022
- Print publication:
- 10 May 2022, pp 156-160
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Summary
Many people see the outbreak of the coronavirus pandemic as a more or less necessary consequence of capitalism and its inherent growth imperative. Correspondingly, they perceive the pandemic not only as an urgent warning sign, but also as a unique opportunity to overcome the focus on economic growth. This is assumed to be even more pressing, given the climate crisis and the close linkage between economic growth and carbon dioxide emission (see Chapter 24). Is degrowth a realistic perspective or is it a fantasy that cannot be realized, due to economic or political reasons?
Degrowth in debates of International Political Economy
Traditionally, discussions about degrowth did not play a major role in IPE debates. However, during the last decades IPE scholars have started to engage with debates in Environmental Studies between ‘technocentric’ and ‘ecocentric’ approaches to sustainability (O’Brien and Williams, 2016: 246–9). Both perspectives agree on the urgent need to protect the environment, but they disagree on the relative weight of this objective against other objectives. From a technocentric perspective, the main function of the economy is to satisfy human needs. In an ecocentric perspective, human needs are balanced with the concerns of all living organisms. A technocentric perspective assumes that economic growth is possible without ecological degradation in principle, even if it has been tightly coupled so far. Crucial instruments would be taxes on carbon dioxide emissions and technological innovations. An ecocentric perspective is deeply sceptical of modern industrial growth and assumes that it is incompatible with ecological preservation.
The ‘degrowth’ concept is a particularly prominent articulation of ecocentric approaches. The basic assumption of the degrowth movement is that, sooner or later, the climate change crisis will lead to natural disaster, which entails much loss of human life. Therefore, human societies will not have a choice, but to take drastic measures to lower their economic footprint and to abandon their belief in the feasibility of endless growth, in favour of a ‘steady-state economy’ and a more frugal lifestyle. Most contemporary degrowth academics and activists share two beliefs: first, that it is impossible to have economic growth without environmental destruction; and second, that the necessary transformation has to be capitalism-critical, based on female emancipation, non-violent and deeply democratic (Eversberg and Schmelzer, 2018: 251–2).
Contents
- Andreas Nölke, Goethe-Universität Frankfurt Am Main
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- Book:
- Post-Corona Capitalism
- Published by:
- Bristol University Press
- Published online:
- 13 October 2022
- Print publication:
- 10 May 2022, pp v-vi
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