State and Market Actions - Dissertation Example

State and Market Actions Question: Define the terms “state” and “market” and give examples of “state actions” and “market actions.” Is the line between state and market clean and clear, or is it sometimes hard to determine? State and Market: There are various different definitions of state that were put forward by various practitioners of international relations. However if we summarize these definitions in order to come up with one simple definition, state can be defined as an independent entity which consists of basic ingredients like population, territory or area, government and foreign relations. Or in other words state can be defined as an independent country which has following main pillars (Cohen, 2008)|: Territory (area): the concept of state deals with the availability of areas whose boundaries are well defined and are recognized by other states as well. Population: another pillar of state is population, as no concept of state can exist without having any population. Economy: state should be capable of performing economic activities within and outside the boundaries and should have a basic economic structure. Transportation: is amongst prime pillars of state as it deals with moving commodities and catering people around the state. Government: the concept of state is dependent upon the availability of governing body or government. As this government is likely to control its subjects and ensures law enforcement through police, judiciary and other mechanisms. Besides these pillars sovereignty and recognitions by other countries are other two pillars as well. Whereas market can be defined as a place, where group of consumers are willing to search for products in order to buy them, and in most cases these consumers are equipped with all the necessary resources in terms of buying those products provided that permission from the state is taken in this regard (Cohen, 2008)|. However in terms of explaining state action, consider an example of terrorist attack on world trade centre (September, 11). Soon after those attacks President and the members of congress allocated $40 billion to cope up with this issue. This action of president and members of congress falls in the category of “state action”, whose prime purpose was to deal with the catastrophic condition at that time. Consider a situation where prices of the products are inflating, and buyers are still willing to pay for it because they does not have any other option or in other words they believe that those products are worth paying for these high rates. This whole situation falls under the category of “market action”. Moreover the difference between market and state is clear, as market exists within the state boundaries and operates according to the rules and regulations prescribed by the state. While state works as a governing body. Question: What is the relationship between politics and the state on one hand and economics and the market on the other? Relationship between Politics and State: State can be defined as an independent entity or a formal group which has defined area, and is supreme over its subjects. However government may influence and impose changes in the rules and regulations of the state but the state remains the same. On the other hand politics generally consists of formal and informal structures that work as an enzyme whose main purpose is to clear state sovereignty over the people and the territory. The politic facilitates the process of creating balance and harmony among different interests, abilities, and determination of different people aiming to run the state operations (Frieden and Lake, 2003). Relationship between Economics and Market: There are many economists who believe that economics is a science, which directly deals with the issues related to demand and supply of goods and services and also facilitates production of commodities. Economics is part and parcel of the company or organization, as it deals with providing solutions for companies in various different regards. For instance economics provides insights to marketing products and can work as an alternative resource generator in order to maximize or enhance the profits of companies. In simple words economics helps in determining the ways for companies in muzzling the costs, risks and losses. Moreover market can very much gain various benefits from economics as well. As it gives the luxury of taking informed and fruitful decisions based on facts. Decisions are devised using different economics tools, considering the behavior of customers because customers at times opt for different behaviors. Therefore market should be ready in order to apply or adapt these changes by using variety of different analytical methods like, risk analysis, regression and co relation (Frieden and Lake, 2003). Question: How do states and markets differ in the values and goals and the means with which they seek to achieve their goals? Discuss this question both in general and with respect to a current event topic located in a newspaper or magazine? Different Goals and Values of State and Market: Market is a platform where potential buyers meet sellers with a purpose of increasing their sales and maximizing their products. In terms of global perspective market encourages trade amongst the different countries so that their profits can be maximized and economic growth can be achieved. As nowadays efficient economies are very much dependent upon the markets local and international. One can easily elaborate from the Greek default case, that goal of the markets at times clashes with the goals of the states and both at times are in conflicting positions. The Greek default affected both international exporters and domestics importers; who suffered the loss because of devalue of currency. Further devastations were seen on financial institutions and corporate sectors as well. Holders of corporate debts were amongst the victims too, because of the devaluation of assets, it has resulted in creating a negative ambiance for the small industries and businesses, as banks were reluctant in giving loans therefore market had to face a severe loss (Turnbell and Wakeman, 2012). This economic devastation further garnered itself in a way that prices of commodities doubled, as a result it was very hard for marketers to make profits or to enhance their market shares. So therefore in order to come out from this catastrophic conditions state had to make some changes which were in many ways against the goals and values of the market, as the survival of the state was threaten and chances of collapsing state was inevitable (Turnbell and Wakeman, 2012). These sorts of situations usually arises when market and state goals are in conflict, as the main purpose of market is to increase and maximize its profits while state on the other hands state aims to hedge against risks. Question: Efficiency and security are two important factors in IPE. Briefly explain why efficiency and security are both desirable values. Can security exist without efficiency? Can efficiency exist without security? Explain Efficiency and Security in International Political Economy: The prime and major focus of international political economy is to ensure and create positive ambiance that propagates profitable expansion in developing and shifting economies, the role of foreign employment in improving economic interests around the world and the impact of international financial system on the world economy (Lairson and Skidmore, 2003). However efficiency in general can be defined as achieving the desired goals and objectives with the efflux of little resources, or in other words using the quantity of resources that could further prove to be giving beneficial outcomes. Similarly efficiency in general means improving or making most with the limited resources. Likewise security one way or the other ensures that the defense does not limit itself inside a closed national economy, but rather it works as an integral part of international economy. It may deal with the actions taken by military, or by signing agreements or treaties amongst different countries or states (Lairson and Skidmore, 2003). There are many who believe that security and efficiency are dependent upon each other. Or in other words security cannot exist without efficiency. The more efficient the international political arena is the more it makes ways for greater security. Meanwhile in order of becoming efficient country, security concerns should be addressed. As security enables freedom and peace of mind and ensures risk free environment or in other words it eases tension of being undone by other states using military power against one another (Lairson and Skidmore, 2003). Generally the concept of security emphasizes on external pressure but because of the modern development and globalization factors it has a new meaning as well. Domestic threats, such as poor economic protections (water, food, and job) are also considered as a security concern these days. Meanwhile using efficiency in order to answer issues related with scarcity of resources, addressing environmental issues, and economic problems can be very much muzzled with ease. Question: Adam Smith and John Maynard Keynes are both liberals, in the broader sense this term is used in IPE. Explain what views Smith and Keynes share regarding the market, the state, human nature, and power. How do they differ? Views of Smith and Keynes regarding the Market, the State, Human Nature, and Power: Adam smith and John Keynes are amongst the two well known economists who have done various contributions in the field of economics and have in many ways developed the study of economics. In their practical works and theories there were number of similarities and dissimilarities, which one way or other testified that the field of economics is very much diversified and in many ways this field is immeasurable and flexible. Adam smith is very much known and considered a classical economist, whereas John Keynes on the other hand is the creator of the Keynesian economics (Lavigne, 1991). Given below are the views of both economists regarding Market, State, Human Nature and Power (Lavigne, 1991): The market: Adam Smith was in the favor of free market, and believed that government interference should not be on the market, on the other hand Keynes had total different and opposite ideas. He believed that government interference is mandatory in order to smoothly carry out market operations. The state: Adam Smith always endorsed laissez faire as he was a prime supporter of it, or in simple words the role of government in the shape of interventions like tariffs and subsidies should not be imposed on (overall) economic system. While on the other hand Keynes had strong believe that government should intervene and should take effective part in the overall economic system in order to reduce, minimize and overcome varieties of issues in the short run and should not seek for the market to resolve it in the long run. Human nature: Adam smith believed that prosperity in the society can be achieved from the individual pursue of self interest, as it is in many ways is superior from society and ultimately results in bringing prosperity. Furthermore individuals are free to produce and exchange commodities as per their liking. Whereas people are likely to save and spend their extra money when their income will increase, as this view was put forward by Keynes. Power: Adam smith believed that government control was confined to the defense of the nation, social work, schooling, and chastisement of crimes. Whereas Keynes believed that government should invest on the private sectors and should get demand of the commodities. Question: Why during the global financial crisis many experts have recommended reading Keynes over economic liberals such as Hayek or Milton Friedman? Global Financial Crises In the global financial crisis situation the demand of the money has shown boost in comparison with supply of the money. Consequences, enormous withdrawals of the money from the banks were seen leaving banks with no options but to sell their assets in order to survive. In global financial crisis, John Maynard Keynes, the father of microeconomics (theory) was considered over the other economic liberals such as Hayek or Milton Friedman. Following were some of the main reasons for this consideration (Miller, 2008): To overcome the ambiance of depression Keynes suggested intervention of the government on the market, whereas Hayek and Friedman had total opposite views. Keynes believed that through government interventions and supports fiscal policy will recover after the recession. Hayek and Friedman opposed such interventions. Friedman believed that imposing monitoring policy in terms of controlling the flow of money can result in coming out of this depression or turmoil. Whereas Keynes was in favor of government spending as this according to him was the way out of depression. However Hayek opposed monetary policy. Keynes “General Theory of Employment, Interest and Money” is related to classical perception of cutting wages, as in order to harmonize the economy government should impose and ensure spending control. Keynes believed that government should be the active player in the economy, and should take all necessary measures to overcome this calamity. This theory of Keynes had better ways and solutions of coming out from the crisis compared with the other economic liberal theorists (Miller, 2008). Question: Globalisation’ generally refers to the trend for governments, firms and labours around the world to become increasingly dependent on and integrated with each other. Explain why it is considered to be an ‘imprecise concept’; critically assess whether it is a new phenomenon; and discuss its sustainability in the future. Globalization Globalization in many ways has resulted in bringing changes around the world. Generally this phenomenon is used in order to explain the dealings of communication, production and technology usage around the world. Moreover it is a process that breaks all conventional barriers and denies the concept of territory, society, national wealth etc. Given below are some of the important reasons why globalization is considered to be an imprecise unit (Amoore, 2002): Outsourcing: globalization promotes outsourcing and due to this reason jobs are created in other countries because companies leave their parent countries. Consequences people of parent country are jobless. Independence: although globalization promotes cultural mix but overall independence of the state starts fading. Global policy: since global policy is not considered by many states, therefore security issues of people and environment are always present. IMF and World Bank: Such kinds of organizations are likely to provide help and assistance in terms of giving loans to under developing countries. Globalization in the past has mentioned by some historians as a predictable or foreseeable, which in many ways resulted in ensuring policies, however in order to make globalization sustainable continuous role of leadership is the key. Globalization is considered sustainable for the future because (Amoore, 2002): Global commercial market: it is because of globalization that commercial markets are now elastic, and brands and companies are not confined to geographic margins of the countries. Capital flow: with the increase of capital flow, investors have now this luxury to invest in developing countries. Free international trade: Globalization promotes international trade which in many ways can reduce conflicts amongst states. Question: It is widely believed that globalisation is a great force for good. But neither governments nor businesses can be trusted to make the case. Explain why. Globalization a Great Force For Good Globalization has resulted in bringing people together and has resulted in shrinking of this world. Nowadays flows of information, money, transportation, knowledge, commodities are faster then ever before. Goods and services produced by one part of the world can be easily accessible from the other parts of the world. However relying and trusting government and businessmen for this sake can very much hurt the cause of it (Oatley, 2010). The administration cannot consider globalization because it failed in order to cope up with the issue of making rich more prominent (prosperous) and poor more inferior over the past years. However this is not the only case as the role of multinational corporations (MNCs) has also played their part in further worsening the conditions and working surroundings. Exploitation of natural resources, destruction of social and ecological environment has been observed in this regard. Moreover these MNCs are now so much powerful that they can influence the decision making ability of the state, and can also force countries to alter their policies through pure manipulation (Oatley, 2010). Similarly businesses cannot be trusted in this regard as well, as they are keen on using globalization to their own benefits. Reaping maximum profits and not considering the health of the society but are only concerned about making scores. At times unhealthy environment for labor is a common practice. Moreover outsourcing is a major source of concern because it threats the job security environment for parent country. As this promotes competition which further leads towards reduction of salaries. As businesses view globalization as an opportunity to maximize profits while offering low salaries for employees (Oatley, 2010). In order to make globalization great force of good, the government should enforce law and should ensure job security as well. Question: How would you define the term “international political economy”? International Political Economy: International political economy can be defined as a social science that deals with the challenges and problems of politics and economy in an international arena. IPE is an amalgamation of law, economics and political sciences within the international system. It goes outside the conventional economics issues about efficiency with customary political issues regarding issues related to distribution and legality in the market and non market (Carne, 1997). Objective of IPE: The prime aim of IPE is to come up with the information which is required in order to evaluate the process of interaction between political forces and economic forces across the globe. It’s almost impossible to imagine the world without IPE as it deals with the evaluation of politics and economics (internationally) in terms of interaction. However the decisions taken by politicians are likely to affect the ambiance of international trade. As a result it may affect countries in terms of making their political decisions or choices and furthermore may also affect entrepreneurs to take economic choices (Carne, 1997). “One cannot separate economics and politics as politics is the control of economy” IPE plays a crucial role in terms of gaining information regarding the politics and economics internationally. Moreover it may also provide awareness regarding the competing environments that produces winners and losers of international politics and international economics (Carne, 1997). Question: Find a newspaper article dealing with any IPE type issue. Prepare a half-page write-up that summarises the problem and identifies the political, social, and economic elements in the article. Euro Zone Crisis: The euro zone crisis very much falls in the category of IPE type issue. As it is been in a recent past that Europe is facing a financial crisis which is not only affecting economies of its member countries but is also affecting their social and political stances (BBC News, 2012). Summary of the problem: it was recently when Europe was hit by a financial crisis, as its member countries are still suffering to deal with this crisis. Therefore policies were made in order to overcome this crisis. As a matter of fact Germany is in favor of ratifying a tough set of rules on the Europe zone. The main idea behind these rules is to control and put a muzzle on government structural borrowing, as Germany believes that this is one of the prime reasons of this crisis. Political element: 12 out of 17 countries have agreed on ratifying rules and regulations and signed a pact as well. According to which the government will not take extra loans and will limit their borrowings to 3%. However different member countries of European zone have shown reservations against this pact. As they believe these laws were implemented in 1997 as well. But majority of countries violated them. Social element: As most of the Europe zone countries have violated the law of government structural borrowings therefore this resulted in creating greater amount of debts for them. As a result these countries had no options but to come out from these debts with the help privates sectors. Extra taxes were imposed by countries which affected the masses socially and economically. Economic element: because of imposition of these new taxes inflation came by. This resulted in killing or limiting exports. As the prices of commodities were high and the buying power of individuals were low. Lack of jobs and low income of people further worsened the situation, as people were caught in a situation where they were unable to pay taxes and debts. The Trade Models: The Gravity Model of Trade: The gravity model in terms of international economics is similar to various other gravity models of social sciences. And at times it is also compared with the law of gravity propose by Newton. However generally this model is used in order to predict the trade flows of the countries. Depends upon the economy size (GDP) and distance between them (Watson, 2004). Tinbergen (1962) was amongst the pioneers who used this model. Moreover given below is the expression which explains the relationship where “I” and “j” represents two different countries (Watson, 2004). Where F = flow of trade between two countries. G= represents constant. M=represents mass of economy of countries (separately). D=represents distance. Practically this model is used by the practitioners of international relations in order to analyze different treaties and alliances keeping trade as a context. The Ricardian Model: The Ricardian model of competitive advantage presents the idea that if there is undistorted market i.e. no tariffs and trade restrictions along with perfect competition, then the countries tend to trade the products in which they have comparative advantage. The comparative advantage is achieved by forming or producing the products or goods at comparatively low cost and with more efficient production procedure (Watson, 2004). The Hecksher-Ohlin Theory: The Heckscher-Ohlin model is considered by many as a universal symmetry mathematical model of international trade crafted by Bertil Ohlin and Eli Heckscher. According to this theory land, labor and capital the three important factors of production drives countries in order to gain comparative advantages over other countries. For instance countries which have commodities in abundance (locally) keeping in view the important factors of production are likely to gain comparative advantage over other countries in the field of these specified commodities. This is mainly because of the fact that profitability of commodities is dependent upon costs of the commodities (input cost). As a result for production of any good if the resources required are in abundance locally. Then these products are likely to be cheaper to those products whose production resources are not in abundance locally (Watson, 2004). For better understanding consider a country where production factors are available for instance land and capital, but does not have labor power as per liking, this sort of country will have comparative advantage in the products which require capital and land not the labor. References Amoore, L. (2002). Globalization contested: an international political economy at work. Manchester, UK: Manchester University Press BBC News. (2012). Eurozone crisis explained. Available from http://www.bbc.co.uk/news/business-16290598 [Accessed 4 November 2012] Carne, G. (1997). The theoretical evolution of international political economy: a reader. New York: Oxford University Press Cohen, B. (2008). International political economy: an intellectual history. UK: Princeton University Press. Frieden, J., and Lake, A. (2003). International political economy: perspectives on global power and wealth. London: Routledge Lairson, T., and Skidmore, D. (2003). International political economy: the struggle for power and wealth. Belmont, California: Thomson/Wadsworth Lavigne, M. (1991). International political economy and socialism. Great Britain: Cambridge University Press Miller, R. (2008). International Political economy: contrasting world views. Oxon: Routledge. Oatley, T. (2010). International political economy: interests and institutions in the global economy. New York: Pearson Longman Turnbell, S., and Wakeman, L. (2012). Why market needs naked credit default swaps. The Wall Street Journal. Avaible from http://online.wsj.com/article/SB10000872396390443686004577639753399337204.html [Accessed 1 November 2012] Watson, A. (2004). An introduction to international political economy. Great Britain: Continuum Read More