CHAPTER 2 of IPE by Balaam and Veseth WEALTH AND POWER: MERCANTILISM AND ECONOMIC NATIONALISM.

Overview: Mercantilism was the first important coherent international political economy perspective. As an approach to IPE, mercantilism grew out of developments related to the growth and power of nation-states on the European continent beginning around the seventeenth century. Mercantilist ideas have evolved over the centuries in response to the development of other theories of international political economy, namely liberalism and structuralism, and as the international political economy itself has changed. This chapter looks at classical mercantilism in its historical context, then examines the evolution and development of a number of concepts and ideas associated with the concept including economic nationalism, neomercantilism, realism, and statism. In the past the term mercantilism accounted for the desire of states to generate trade surpluses to increase their wealth. To the extent that wealth enhanced a state's military power by producing or purchasing weapons, it also enhanced national security. Mercantilism is also the name given to a historical period when the major European powers colonized much of the "new world". As it did earlier, today neomercantilism accounts for the compulsion of states to use the economy to generate wealth but also to adopt a variety of protectionist trade, investment, and other policies to sustain that wealth and condition the behavior of other states. Neomercantilism remains a potent force in the world today often manifested in protectionist policies some states adopt to counter the benign neomercantilist policies of other nations. Given the compulsion of nation-states to think or act on the basis of the national interest, policy makers will continue to be guided by the sounds of mercantilism. Learning Objectives: What period of history is usually associated with mercantilism? What view or philosophy of IPE is usually associated with mercantilism? What types of government policies are usually associated with mercantilism? Why do mercantilists tend to favor a strong state role in the economy? Why do mercantilists tend to promote industrialization rather than agriculture? How is today's neomercantilist different from the classical mercantilism of Hamilton and List? What is a "zero-sum game" and why do mercantilists tend to view trade as such a game? Why are the economic policies of Japan and the Asian NICs often associated with

mercantilism or neomercantilism? What is "statism" and how does statism differ from a mercantilist policy of protectionism through tariffs and export subsidies? What is realism and how is this political philosophy related to the mercantilist view of IPE?

Chapter Outline 1. Introduction a) Mercantilism is a perspective on IPE that accounts for the nation-state's motivation to accumulate wealth and power in order to enhance its independence and national security. b) There are many forms of mercantilist thought and policy, but the common thread is the desire to accumulate wealth to gain power for the purpose of national security, whether economic security or military security. c) Mercantilism generally refers to an IPE philosophy, a period of history, and a set of economic and political policies. The Intellectual Roots of Mercantilism a) Mercantilists favor a strong state role in the economy, viewing state action as necessary to gain wealth and power. b) Alexander Hamilton of the United States was a strong advocate mercantilist ideas, arguing that the state needed to promote industrialization in order to overcome the advantages and subsidies of other nations. c) The German Friedrich List was another strong mercantilist who argued that a nation must sacrifice its living standards in the short run in order to invest in productive power I and manufacturing, which were necessary for long-run wealth and security. d) List and Hamilton promoted a kind of patriotic economic nationalism, emphasizing that it was in the national interest to develop a strong manufacturing basis for economic security. e) Many LDCs and NICs today subscribe to the mercantilist ideas of Hamilton and List. The Mercantilist Period of History a) Mercantilism also refers to the so-called mercantilist period of European history (roughly the sixteenth through nineteenth centuries) when the modem idea of the nation-state was born. b) Economic gains by one nation-state commonly came at the expense of other nation- states (as states competed for territory, for example), creating a zerosum game. c) In a zero-sum game such as poker, what one party wins is equal to what others lose. d) The mercantilist period of history coincides with the period of classical imperialism, when war, conquest, and colonial development were frequent occurrences. Economic Nationalism

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Mercantilism evolved into economic nationalism in the second half of the nineteenth century. Many nations adopted protectionist policies in response to the Great Depression of the 1930s.

The Road to Postwar Neo-Mercantilism a) After World War II, many nations defined their national security interests to include economic security matters. b) Neomercantilist policies were the relatively subtle forms of protectionism and export- promotion that took place after World War II as nations sought to achieve greater economic security within the liberal structure of the GATT trade regime. Mercantilism as Economic Management: Statism a) Statism is an extreme form of mercantilist policy, where the state takes greater responsibility for the economic welfare of its citizens. b) Statism is partly a response to fears regarding the impact of unregulated international markets on domestic economic conditions. Mercantilism and Realism: Contemporary Philosophies a) Realism is the political philosophy that views the nation-state as the primary actor in international relations. b) For realists, nation-states seek power to use in their perceived national interest in a zero- sum world populated by other similarly motivated nationstates. c) Realism is a broader political philosophy than is mercantilism, but they tend to be associated with one another because of their similarities, such as zerosum consequences, the importance of the nation-state, and the critical importance of power and security. d) Realists put more stress on military security than do mercantilists, but both groups value economic security. Contemporary Economic Nationalism and Neo-Mercantilism a) Mercantilists today use a wide range of tools and policies to promote domestic industry. b) Export-lead growth is favored by many contemporary mercantilists, who advocate policies that go well beyond the defensive protectionism of past years. Box: Espionage a) With the end of the Cold War, some countries have changed gears, shifting from military spying to industrial espionage. b) Industrial espionage is an illustration of how the knowledge structure figures into IPE today

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10. Conclusion

Suggested Readings

Fallows, James, "How the World Works," The Atlantic Monthly, December 1993, pp. 61-87. List, Friedrich, "The Theory of the Powers of Production and the Theory of Values," from The National System of Political Economy, Second Book, chp. 12. (New York: Augustus M. Kelley, 1966). Both readings are found in Balaam and Veseth eds., Readings in International Political Economy (Englewood Cliffs, N.J.: Prentice Hall, 1996). Vocabulary Check: mercantilism economic nationalism realism neo-mercantilism statism Alexander Hamilton Friedrich List productive power classical imperialism zero-sum game nation-state protectionism Less Developed Country (LDC) Newly Industrialized Country (NlC) multinational corporation (MNC) General Agreement on Tariffs and Trade (GATT) industrial espionage