Indonesian President Susilo Bambang Yudhoyono mentions the C-Word!
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In a speech at the 5th World Islamic Economic Forum in Jakarta, on 2 March 2009, president Yudhoyono mentioned the C-Word [see]:

Indonesia is honored to be the host of this year’s World Islamic Economic Forum. I have always been supportive of this Forum, both as a progressive muslim and as patron of the WIEF national committee. I have always believed that what we seek to achieve through the WIEF is more than just economic cooperation. What we aspire is to promote greater friendship, brotherhood and solidarity among muslims, and between nations. We want to see the ummah becoming enlightened and empowered to address 21st century challenges. For the the 21st century will be an era unlike any other era before. The 20th century was known as the century of hard power; the 21st century we hope is the century of soft power. The 21st century will be driven by openness, technology, connectivity, dialog, and integration. It will be the age of possibility and opportunity. That is why the WIEF is relevant because it helps the ummah adapt to that wondrous world. The ummah can shape and have full ownership of the 21st century. But first we must make the ummah a stake-holder, and we must empower them. The ummah can once again become a key driver of globalization, just the way we were the world’s first globalizers in the 13th century. Only by embracing excellence and innovation, can the ummah, after centuries of marginalization, make that great leap forward in this amazing century. Let us begin now.

Topic for Discussion: Realism, Liberalism and MENA Revolutions [NOT Required reading!]
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Not an abstract discussion! What seemed exceedingly abstract only a few days ago has now become a very tangilbe matter: what to do about Libya? What to do about Bahrain, Syria? Every one of the so-called Great Powers ––America, Canada, the EU, BRICs–– has to take a stance on Libya. It’s a battle between realists and liberals! Read the following statements and analyze whether they come from a LIBERAL o REALIST perspective. In each case, briefly state the opposing argument. Most answers are obvious; but the point of this discussion is to remember that great powers sometime have to take dramatic decisions in a matter of … days.

Background info: Libya and oil. Map of oil and gas resources. Before the crisis, Libya produced 1.58 million barrels of oil per day, about 2% of global oil supplies. Oil price rose sharply [chart]. However, Opec’s spare capacity stands at about 4.7m b/d — a comfortable cushion. A contagion scenario affecting production in Algeria, Oman, Yemen and Bahrain would see prices skyrocket to about $150-$220/barrel. Were unrest to hit Saudi Arabia, the spike could be sharper. And that would mean a very sharp worldwide recession.

[1] “If Col Gaddafi’s regime wins its civil war, consider the next phase. There will be more massacres and refugees. What then? Indefinite containment and sanctions on a pariah state endowed with wealth, pathological leadership and experience in state use of clandestine terror networks An objective can be stated simply: Col Gaddafi out of power”. (Philip Zelikow: “Only a no-drive zone can stop Gaddafi’s forces now”, Financial Times, March 26). Counsellor of the US Department of State, 2005-2007.

[2] “Absolute monarchies in the Arab world will need to contemplate constitutional monarchy and power sharing of they are to survive” (David Gardner: “And so to chapter two of the great Arab awakening”, Financial Times, March 20).

[3] “America has little strategic interest in north Africa but a lot at stake in the Gulf”. (Quoted by David Gardner: “And so to chapter two of the great Arab awakening”, Financial Times, March 20).

[4] “Hosni Mubarak kept conflicts at bay; authoritarian regimes in the region are the only alternative to chaos or radical Islam”. (Quoted by Roula Khalaf: “Making history in the street”, Financial Times, March 27).

[5] “In the region, 60% of the population is under 25; they have the internet, and they are aware of the things that happen around the world”. (Quoted by Roula Khalaf: “Making history in the street”, Financial Times, March 27).

[6] “Mohamed El-Baradei, Nobel laureate and opposition figure: they [the networked generation] know that nothing will change in terms of social justice and economic demands except through democracy”. (Quoted by Roula Khalaf: “Making history in the street”, Financial Times, March 27). [ElBaradei video].

[7] “Western powers are nervous about being sucked into a third war in an Islamic country after the painful experiences of Afghanistan and Iraq”. (Quoted by David Gardner: “And so to chapter two of the great Arab awakening”, Financial Times, March 20).

[8] “Mr Cameron is plainly guided by moral conviction; but this is a dangerous indulgence for a leader facing so many problems at home”. (Max Hastings: “Why the military is right to fret over Libya”, Financial Times, March 25).

[9] “Should this commitment expand any longer in terms of cost, time or intensity, I do think it’s important for Congress to be consulted and included in the decision-making process”. (Senator Chris Coons, a Democrat member of the Senate foreign relations committee, quoted by Richard McGregor: “Obama struggles for clarity in messy conflict”, Financial Times, March 25).

[10] “The main matter in the Middle East: managing Egypt’s democratic transition, and the Gulf, where a crackdown on Bahrain threatens to exacerbate Shia-Sunni tensions”. (Richard McGregor: “Obama struggles for clarity in messy conflict”, Financial Times, March 25).

[11] “We cannot be sure whether what we are seeing is a genuine democratic revolution; repression could rule the day. Anarchy, civil war, harsh police states, sectarianism, and severe Islamic rule are all potential alternatives to the sort of authoritarian regimes that have recently dominated the region. All of those outcomes are possible; none is likely to lead to greater freedom. Overall, we must be realistic about what to expect from a small degree of democratization. Immature or partial democracies are vulnerable to being hijacked by populists or extreme nationalists. A Middle East more influenced by public opinion could well be less willing to work against terrorism, or on behalf of peace with Israel. It is likely to be no more of a partner when it comes to providing oil at reasonable prices”. (Richard Haass: “How to read the second Arab awakening”, Financial Times, March 9). [video]. President, Council on Foreign Relations.

[12] “The Syria/Iran/Hizballah axis is a huge benefit to Iran and ending it would weaken Iran’s position greatly. Syria is Iran’s only ally in the Arab world and its land bridge to Hizballah. Recent reports of an Iranian naval facility in the Mediterranean reminded us of how valuable an asset Syria is today for Iran. If a Sunni-led Syria (and the country is 74% Sunni) ended the Asad regime’s romance with the ayatollahs, American interests in the entire Middle East would gain. Hizballah’s power in Lebanon would diminish instantly and the opposition to Hizballah—the March 14 movement, and Lebanon’s Sunni, Christian, and Druze communities—would grow stronger. Iran’s ability to threaten Israel would diminish if it lost what amounts to a land border with Israel through Lebanon’s Hizballah-controlled south. Moreover, every time a Middle Eastern tyranny falls, and especially so in the case of the tyranny most closely linked to Iran, it makes Iran’s own terrorist regime seem more outdated and anomalous in a Middle East where democracy is spreading.” (Elliott Abrams: “Syria, Iran, and American Interests”, Council on Foreign Relations, March 26).

[13] “For Moscow, the unrest in the Arab world is oddly double-edged. The resulting spike in oil prices has boosted Russia’s economy. On the face of it, the turmoil is a boon for Russia’s resource-dependent economy, taking oil prices close to the $120 a barrel in recent weeks. Economists say the increased prices could lift economic growth by 1 percentage point this year to at least 5%, the highest since 2008. Alexei Kudrin, finance minister, said in Monday that Russia’s budget deficit —built up through heavy spending during the financial crisis— would be eradicated if oil averaged $115 this year. Every $10 increase in the average price of crude oil swells Russia’s revenues by $20bn. That calculus underlie Moscow’s decision to abstain at the UN Security Council on Resolution 1973. Yet the Kremlin is watching uneasily the Middle East backlash against authoritarianism, corrupt and wealthy leaderships. ‘There is a sort of nervousness here that no one has observed before’, said an experienced foreign banker. ‘People are worried about contagion’. The oil windfall could restore Russia’s pre-crisis complacency, tempting it to backtrack on much needed corruption and reducing the state’s role in the economy. Polls suggest support for President Medvedev and Vladimir Putin, prime minister, remains at about 70%. But there have been signs of official jitters. (Catherine Bolton & Neil Buckley: “Russia in dilemma on Arab unrest”, Financial Times, March 16).

[14] “On Monday, officials were confronted with a rare moment of open disagreement between the two men who run the country. Prime Minister Vladimir V. Putin issued a lacerating critique of the allied attacks on Libya — the kind of protest that accompanied Western interventions in Iraq and Kosovo. President Dmitri A. Medvedev, who had articulated a more pro-Western position, rebuked his mentor, calling Mr. Putin’s language unacceptable.” Ellen Barry: “Leaders’ Spat Tests Skills of Survival in the Kremlin”, The New York Times, March 2011.

Liberal: Thomas Barnett
. Thomas P.M. Barnett: Twitter; blog; video; The Pentagon’s New Map. War and Piece in the XXIst. Century (New York: Putnam, 2004) [webpage].

. The Connectivit Approach to IPE. An interesting ––and modern–– example of “Complex Interdependence” (Chapter 4 of C. Roe Goddard, Patrick Cronin & Kishore C. Dash. International Political Economy). Barnett defines connectivity as “The enormous changes being brought on by the information revolution, including the emerging financial, technological, and logistical architecture of the global economy (i.e., the movement of money, services accompanied by content, and people and materials)”. In more concrete terms, connectivity can be defined as openness to trade flows (WTO membership, free trade agreements), plus openness to foreign direct investment (FDI) flows, plus access to broadband internet connectivity.

. Cell phones: the 4 billion mark! The number of mobile phone users worldwide will exceed 4 billion mark by the end of this year - two thirds of the population of the world. Time for a wake up call. According to the European Information Technology Observatory (EITO), the number of mobile phone users will rise from 3.9 billion in 2008 to 4.4 billion in 2009, an increase of 12 percent; Cisco: 1 Trillion Connected Devices by 2013. There will be 1 trillion devices connected to the Internet by 2013, said Cisco Chief Technology Officer Padma Warrior during her Wednesday keynote address at CTIA. Warrior argued the boom in connected devices, applications and mobile broadband would not only change the wireless industry but society in general. "The Internet is no longer just an information superhighway, it's a platform," Warrior said, citing the increased adoption of M2M technologies and the exponential growth of apps, which will hit 1.5 million by 2013.

. A New Approach to Center-Periphery Dynamics. The ‘Functioning Core’ includes those parts of the world that are actively integrating their national economies into the global economy and that adhere to the emerging consensus of free markets and strong political institutions (the rule of law). The Functioning Core at present consists of North America, Europe both ‘old’ and ‘new’, Russia, Japan and South Korea, China (although the interior far less so), India (in a pockmarked sense), Australia and New Zealand, South Africa, and the ABCs of South America (Argentina, Brazil, and Chile). That is roughly 4 billion out of a global population of more than 6 billion. The Functioning Core can be subdivided into the Old Core, anchored by America, Europe, and Japan; and the New Core, whose leading pillars are Brazil, Russia, India and China [the so-called BRIC countries]. ‘Gap nations’ are defined as nations “where connectivity remains thin or absent” (Pentagon’s New Map, p. 4) [See Map].

Some "Gap" benchmarks: [1] Dictatorship. “As soon as a leader declares himself ‘president for life’, disconnectedness becomes a near certainty” (PNM, p. 133); [2] Frequent leadership changes. (Bolivia, Ecuador, Argentina, Thailand); [3] The curse of raw materials. Venezuela, Bolivia, some Arab oil exporters: “Historically speaking, countries whose economic well-being relies extensively on the exportation of raw materials are some of the least connected states in the world.” (*); [4] Theocracies. They have “a dampening effect on connectivity with the outside world”; [5] Transportation problems. Paraguay lacks a good transportation connectivity with the outside world; [6] The treatment of women. (Blueprint for Action, pp. 256-259). (*) See Thomas Friedman. “The First Law of Petropolitics”, Foreign Policy, May-June 2006.

. Life in the (Disconnected) Gap: Thomas Hobbes. Inside the Gap, life is solitary, poor, nasty, brutish, and short”. [Leviathan, chapter XIII] (Barnett, pp. 161-166). No need to mention too many examples; some cases that come to mind: Guinea-Bissau president assassinated amid scenes of chaos; slaughter of senior military officers in Bangladesh; rape epidemic in Congo; Angola children tortured as witches. And the list goes on and on. 

. The Security Angle: Disconnectedness Defines Danger. “Disconnectedness is the ultimate enemy” (PNM, p. 124). “Once isolation is ended, and broadband connectivity is achieved for the masses, the forces of terror and repression can no longer hold sway” (PNM, p. 193). “Disconnectedness defines danger, so connectedness defines safety” (PNM, p. 331). That is what happened in Afghanistan in the early 2000s. According to Barnett, Libya is likely to follow a similar pattern if Kaddafy stays in power.

. State-on-State War: a thing of the past! Barnett believes that wars between great powers and even state-on-state wars are extremely unlikely to happen. There are three reasons for this: (1) Nukes (the principle of MAD, or Mutually Assured Destruction); (2) the United States military superiority (America’s defense budget is many times greater than that of any other great power); (3) Connectivity (the economic and financial cost of war).

. The Unit of Analysis: Individuals. The faceless homo economicus of neo-classical economists has vanished; his place has been taken by real-world entrepreneurs and leaders. The emphasis is on: (a) poor people inside the Gap, increasingly able to access information and to connect to the world economy; (b) entrepreneurs and innovators of all countries, races, gender, social standing; (c) social leaders: India needs a Bill Gates, i.e. a tycoon who retires and fights poverty and disease; China needs an Erin Brockovich to fight for the environment; (d) founders of nations: successful founders of nations are endowed with a rare combination of ruthlessness (to get things done) and capacity for self-command (to resign voluntarily from power and set a lasting example). Barnett praises Deng Xiaoping –– whom he deems more important than Ronald Reagan, Margaret Thatcher and Pope John Paul II together. 

. The Unit of Analysis: Classes. Unlike Marxism, which focuses on the extremes, the connectivity approach to IPE has its eyes squarely on the middle class. From The Economist special report on “The new middle classes in emerging markets”: “For the first time in history more than half the world is middle-class—thanks to rapid growth in emerging countries. Following the historical examples of Britain and America, they are expected to be the dominant force in establishing or consolidating democracy. As a group, they are meant to be the backbone of the market economy. And now the world looks to them to save it from depression. With the global economy facing the biggest slump since the 1930s, the World Bank says that “a new engine of private demand growth will be needed, and we see a likely candidate in the still largely untapped consumption potential of the rapidly expanding middle classes in the large emerging-market countries.” This special report argues that many of these expectations are broadly justified; that there is indeed something special about the contribution the middle classes make to economic development that goes beyond providing a market for Western consumer goods.

The middle classes can, and sometimes do, play an important role in creating and sustaining democracy, though on their own they are not sufficient to create it, nor do they make it inevitable”. This is, in a nutshell, what Barnett calls ‘the ideology of the global middle class’ (Great Powers, 2009, p. 99). [See also the article by Goldman Sachs’ chief economist Jim O’Neill. “Boom time for the global bourgeoisie”, Financial Times, July 15, 2008: By 2030, 90 million people a year will enter the middle class –– defined as households with annual incomes between $6,000 and $30,000. The global bourgeoisie will by then number 2 billion people].

. The Unit of Analysis: Nation-States. Competition between nation-states has moved from the military to the economic level. “Competition has left the military sphere”. Nation-states will also compete for prestige: who organizes the best Olympic Games? Who will be the first carbon-neutral economy? Who will be the leading center for Sharia-compliant bonds or sukuks? (Key contenders: Dubai, Malaysia, Singapore, London). On the other hand, Old Core nations will have to cooperate with New Core powers, albeit reluctantly, to ease disconnectedness inside the ‘Gap’. Barnett: “The United States cannot simply shrink the Gap by itself” (PNM, p. 58). China and America are not enemies; but they aren’t friends either. THEY ARE FRENEMIES!

. The Emerging Political Culture in the New Core. Although Barnett never mentions him, his views on China and globalization have a lot in common with Gordon S. Wood’s analysis of the American Revolution (The Radicalism of the American Revolution, 1992). Wood’s point is simple: Whenever an enterprising population discovers the sheer immensity of the marketplace, a new political culture emerges – and it tends to challenge the existing political order (based on the principles of authority, paternalism and hierarchy). In other words, “connectivity eliminates the ability of elites to maintain their political standing” (PNM, p. 217). The spread of connectivity “cannot be denied to any gender, any faith, or any ethnic category whatsoever” (PNM, p. 361). India. Young Indian women working in call centers and making more money than their fathers; entrepreneurs emerging from castes that were not supposed to engage in business. (Barnett: the caste system is doomed!) China. The richest man in China is … a woman! (Cheung Yan –– the 49 year-old founder and chairwoman of top Chinese paper packager Nine Dragons Paper. Also, divorce rates are sharply up. Globalization empowers women, pure and simple, and the effects are the same the world over, blowing Huntington’s civilizational distinctions right out of the water.

Realist: Gideon Rachman

. Gideon Rachman: Twitter; blog; video; Zero-Sum Future. American Power in an Age of Anxiety (New York: Simon & Schuster, 2011) [abstract] [blog] [Twitter] [book review].

[DOCUMENT - NOT required reading!] (From Rachman’s book). During the years between the collapse of the Soviet Union in 1991 and the collapse of Lehman Brothers in 2008, globalisation created common interests between all the world’s major powers. A world that had once been divided between capitalist and communist systems – and between a small group of rich countries and a much larger group of underdeveloped nations – was now united by a single economic system. For a tantalising 20 years, globalisation seemed to promise rising living standards for all nations, and a more peaceful world. The economic crash of 2008, however, has changed the logic of international relations. In a new economic situation, the win-win logic that allowed the major powers to embrace globalisation is now being replaced by a zero-sum logic, in which one country’s gain looks like another’s loss. Both as individuals and as a nation, Americans have begun to question whether the “new world order” that emerged after the cold war still favours the US.

The rise of Asia is increasingly associated with job losses for ordinary Americans and with a challenge to American power from an increasingly confident China. Chinese thinkers, for their part, are increasingly suspicious that a wounded America is intent on thwarting their nation’s rise. Tensions between established and rising powers are the traditional stuff of international relations. But the financial and economic crisis has also disrupted the intellectual narrative that helped western leaders to make sense of the world, in the 20 years after the end of the cold war. A western Age of Optimism between 1991 and 2008 was underpinned by a set of ideas, which might be called liberal internationalism. As a journalist at The Economist for most of the period, I was deeply familiar with these ideas, since we argued for many of them on a weekly basis. In retrospect, I think there were five key elements to the ideology of the period before the financial crisis.

The first was a faith in the onward march of democracy – expressed most famously by Francis Fukuyama’s essay on the “end of history”, which appeared in 1989, just as the Soviet empire was collapsing. The second, linked belief was a faith in the triumph of markets over the state. This was also the era of the rise of the personal computer and the internet, and so a third key belief was in the transforming power of technology, as a force driving forward prosperity, democracy and globalisation. The fourth idea, which knitted all these notions together, was the theory of the “democratic peace”: the belief that in a world in which democracy and capitalism were on the rise, the risk of conflict between nations inevitably diminished. The fifth and final idea – a sort of insurance policy – was the faith that in the last resort the US military could defeat any power on earth. By the time Barack Obama took office, each of the five ideas that had underpinned American self-confidence during the Age of Optimism had taken a battering.

The faith in the onward march of freedom had been shaken by the difficulties of exporting democracy to Iraq and Afghanistan, and by the rising confidence of authoritarian China. The belief in the power of free markets took a terrible blow with the economic and financial crisis of 2008. The technological revolution no longer seemed the magical cure-all that it had promised to be, as problems as diverse as climate change and the mechanics of military occupation proved impervious to a technological fix. The theory of the “democratic peace” looked less persuasive, as Russia flexed its military muscles, almost over-running democratic Georgia in August 2008 and China became more assertive in territorial disputes with Japan and India.

Finally, the belief in the unstoppable nature of American power looked much shakier with US troops bogged down in Afghanistan and Iraq, and the American economy reeling. I got an early hint of how the psychology of international relations was shifting when I visited the campus of Beijing University, just two weeks after the fall of Lehman Brothers, and met Pan Wei, director of the Center for Chinese and Global Affairs. “My belief,” he said, “is that in 20 years we will look the Americans straight in the eye as equals. But maybe it will come sooner than that. Their system is in chaos and they need our money to rescue them.”

Realism, Liberalism, Marxism and ... Current Events

. Unity of analysis. One word on the unit of analysis in each of the three schools of thought. Realism: the nation-state (example: Charles de Gaulle – a very interesting character to whom we may come back later in the program: Je suis la France!). Liberalism: the individual (John Stuart Mill). Marxism: classes – bourgeois vs. proletarians.

. Crisis in MENA! (Middle-East/North Africa). We are lucky, in a sense. Some students tend to perceive the theoretical approaches in IPE as a somewhat useless “abstraction”. But look at the crisis in North Africa! It seems that every country (or union of countries) that considers itself a great power is torn between realist and liberal impulses.

. A word on Marxism. We will come back to that issue shortly. Let me first make a couple of observations on Marxism, the “forgotten” school of thought. Marxism does have something to say about recent events. First, if you read Marx and Engels’s Communist Manifesto (1848), you will note that the authors did admire the sheer creative energy of capitalism. Another point: Marx rightly saw that capitalism was prone to suffer from periodic crisis. Is it not what happened with the Lehman Brothers collapse in 2008?

. [DOCUMENT - NOT required reading!] Karl Marx & Friedrich Engels. The Communist Manifesto (1848). "The bourgeoisie, during its scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, railways, electric telegraphs, clearing of whole continents for cultivation, canalization of rivers..."

Comments on the Program

As you can see from the syllabus, the program includes 6 three-hour sessions packed with lots of material. In theory, each session is meant to deal with its corresponding topic. However, some topics may take slightly more or slightly less time, and we will make the necessary adjustments as we go. One key aim of the program is to provide you with the tools to understand the key issues in today’s (and tomorrow’s) financial diplomacy. Finance plays a prominent role in today’s economic landscape –– we will devote as much as three sessions to understanding credit markets (and the political economy of credit markets). But finance goes hand in hand with trade and innovation. That’s why we will have to read an important paper by Michael P. Dooley, David Folkerts-Landau & Peter Garber: “An Essay on the Revived Bretton Woods System”, NBER Working Paper 9971 (2003). It is rather technical; but we will devote at least half-an-hour to understand the “spirit” under which it was written.

The Dooley paper ––an innovative interpretation of China’s economic development model–– helps us to put the 2007-2009 global financial crisis in context. We need to pay close attention to that event, seen by some authors as a crucial moment in world history: the moment in which the US lost its undisputed superiority in matters of finance and economic. In the aftermath of the crisis, central banks played a leading role in terms of financial diplomacy. We will devote some time to a seemingly technical operation by central banks –– the so-called central bank currency swaps of October 2008, orchestrated by the European Central Bank and the US Federal Reserve Bank. The success of that operation can be understood as a striking exercise in soft power.

The notion of soft power is usually seen as abstract and unrelated to real-world events. But no! Currency swaps will help us to understand how tangible and concrete it can be. Speaking of central banks, part of Session 3 will be devoted to monetary policy. This a rather complicated and technical issue. Even though I’ll present it in a non-technical way, it will not feature in any of the assignments. However, some students might find it particularly interesting –– it happened in previous years. It the need should arise, I would be glad to organize one or more special sessions on monetary policy. But again: it would not be compulsory, and attendance to those special sessions would not feature at all in terms of the final grade.

A word on Session 4. The Political Economy of Credit Markets will take us in a wholly unexpected direction. Based on some econometric evidence ––and on some wonderful passages by Montesquieu and Adam Smith–– we will explore the hidden politics of credit markets. Nineteenth-century classical economists assumed that property rights were fixed, stable and permanent; political representation, the rule of law and stable property were all taken for granted. But this is definitely not the case in most of the emerging world! The material presented here should help us to understand the relative scarcity of capital and credit in the emerging world, and how this ultimately translates into poverty and inequality.

International Political Economy. Department of Political Science, Leiden University - 2011

Course syllabus.
Agustin Mackinlay mackinlaya@fsw.leidenuniv.nl
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Part I. Theoretical Approaches in International Political Economy: An Overview

Session 1. March 31. A brief look at Liberalism, Realism, Marxism. The Connectivity Approach & ‘Complex Interdependence’. New realists.

Assignment. Theoretical Approaches in IPE: Similarities and contrasts (length: 1500 words). Required reading: Goddard & al., chapters 1, 2, 4, 12 and 13.

References. C. Roe Goddard, Patrick Cronin & Kishore C. Dash (eds). International Political Economy, 2nd edition (Palgrave Macmillan, 2003); Thomas M. P. Barnett: The Pentagon’s New Map. War and Peace in the XXIst Century (New York: Putnam, 2004) [blog]; Gideon Rachman. Zero-Sum Future. American Power in an Age of Anxiety (New York: Simon & Schuster, 2011) [blog] [Twitter].
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Part II. Credit Markets & Central Banks: an introduction

Session 2: April 7. An Introduction to credit markets. Credit markets: budget deficits, innovation, inflation expectations.

Assignment. Schumpeter and the 5 cases of innovation (length: 500 words)

Session 3: April 14. Financial crisis and central banks. The fall of Lehman Brothers and “flight-to-quality” episodes. The structure of the Fed and the ECB. Central banks & monetary policy. An introduction to Credit Default Swaps.

Exercise. The credit market.

Session 4: April 21. The Political Economy of credit markets: property rights & the rule of law. Credit markets in less developed countries.

References. Horace W. Brock: “Determinants of interest rates”, in Boris Antl (ed.) Management of Interest Rate Risk (London: Euromoney Publications, 1988); Madeleine O. Hosli. The Euro: A Concise Introduction to European Monetary Integration (Boulder, CO: Lynne Rienner, 2005) [chapter 4]; Raghuram Rajan. Fault Lines. How Hidden Fractures Still Threaten the World Economy (Princeton University Press, 2010) [introduction]; John D. Burger & Francis E. Warnock: “Local Currency Bond Markets”, IMF Staff Papers, Vol. 53, 2006 (especially pp. 141-142); Hernando de Soto. The Mystery of Capital (New York: Basic Books, 2000). Plus selected passages from Montesquieu and Adam Smith and other documents.
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Part III. The Political Economy of China’s Economic Development Strategy & the Global Financial Crisis

Session 5. May 12. China, the U.S. & Bretton Woods II. International reserve currencies. Another look at the 2008 financial crisis.

Assignment. China’s economic development strategy and the global financial crisis (length: 500 or 1500 words). Required reading: Dooley, Folkerts-Landau & Garber (2003). Madeleine O. Hosli (chapter 6).

References. Michael P. Dooley, David Folkerts-Landau & Peter Garber: “An Essay on the Revived Bretton Woods System”, NBER Working Paper 9971 (2003); Madeleine O. Hosli. The Euro: A Concise Introduction to European Monetary Integration (Boulder, CO: Lynne Rienner, 2005) [chapter 6]; Robert Mundell: “The Euro: How Important”, Cato Journal, Vol. 18, No. 3 (1999); Charles G. Leathers & J. Patrick Raines: “The Schumpeterian role of financial innovations in the New Economy's business cycle”, Cambridge Journal of Economics, 2004 28 (5): 667-681.
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Part IV. Financial Diplomacy

Session 6. May 16. Central banks and financial diplomacy: the Political Economy of central bank currency swaps: soft-power, soft-balancing. The G2, the G8 and the G20: Towards a new international monetary order? Crisis inside the eurozone.

Two Assignments. Recent developments in financial diplomacy (length: 500 or 1500 words). Required readings: Bayne (2008).

References. Nicholas Bayne: “Financial Diplomacy and the Credit Crunch: The Rise of Central Banks”, Journal of International Affairs, Fall / Winter 2008, Vol. 62, No. 1, pp. 1-16; Francis J. Gavin. Gold, Dollars, & Power. The Politics of International Monetary Relations 1958-1971 (The University of Carolina Press, 2004). Joseph Nye. The Future of Power (Public Affairs, 2011) [website] [video].
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Grades for this course are calculated on the basis of two 1500-word assignments (20% each), three 500-word assignments and one exercise (12.5% each), and class participation (10%).