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2.AIP - Objectives of state:Economy,Defence, State. Institutions are the rules of the game.

Institutions- “Humanly devised constraints that structure human interaction” (North). Formal(laws), informal(customs). Economic development and sustained high levels of GDP require institutions. Economists argue 4property rights, overall quality of governance institutions. ^GDP countries have better institutions. (voice &accountability, political stability,government effectiveness,regulatory quality,rule of law,control of corruption). Creating institutions involve politics: AIP. Genesis (North)-New institutions=f(power actors,ability to influence outcomes/prefs actors, goals) –constrained by existinginstitutions.ActorsPolitical(rulingparty,opposition,politiciansetc),Societal(capital,land,labour,unions,NGOs,military,students),Internatio nal(Hegemons,States,IMF,UN). For INTEREST assume or deduce, use stated intentions/observed behavior. POWER –voters, legitimacy based on performance, existing institutions,control of military, economic resources, shared ethnicity, nationalism, moral authority, international support, rally around the flag effect in crisis,war. 3. State Structure1- Centralization &Veto points- explore the impacts of existing institutions on political process. Centralization & Decentralization of states shows different political dynamics. C – power in center, generate benefit in aggregate(entire country),better view of overall pic and implied trade offs, 1set of rules 4 every1,policy errors hav big impact(affect entire country),policy changes can b quick, political deadlocks at center (entire country is stuck). D – p power in devolved to various levels, generate benefits at respective level(state), better informed abt local conditions, multiple set of rules at levels mayb contradictory, hedges against policy errors though local experimentation, policy changes take more time as more actors need 2agree, less vulnerable to deadlock coz other levels of govt can proceed with their work. The more distributed power among actors, higher the level of constraints on policy changes. Henisz’s model of P constraints: Veto points-Executive,Lower legislative chamber,upper legislative chamber, federal system, judiciary->potential constraint. Veto points+party alignment across veto points->actual constraint(^alignment=low constraint). Simplified Henisz model: identify VP present in country, check the extent which 1party/person control al VPs (policy mayb unstable), al else equal,the more VPs r under control of 1person, lower the constraint on policy changes(bad if u want stability). KPs-D & C influences political processes, more distributed p power among actors, lower in general the risk of policy changes goin against u. 4. S-Struc2 - Ends, Dmaking,implem – in terms of ends 4catgory of state, regulatory(equality of opportunity,USA), welfare(equality of outcomes, scandinavia), developmental (development,Japan), Rentier(Personal enrichment, Zaire). Types of States&propositions abt state intervention: Regulatory-adjustments in regulatory framework o minor intervention, light regulatory burden. Welfare- Adjustments in regulatory framework o minor intervention, heavily regulated, bias in favour of domestic firms. Developmental –minor intervention in favor of targeted firms, intervention may o may not hav legal basis,strong bias 4 and risk sharin with domestic firms. Rentier –anything is possible 4the right price, bias toward highest price. Decision makin comes in 3 types-Bottom up, variety in outcomes;”pluralist”(low societal coordination eg,USA(partial), Negotiations with fixed groups: “corporatist” (^ societal coordination eg. Continental Europe(not france),Japan), Top down: “statist” (medium societal coordination, eg. Mao’s China, Stalin’s USSR, France). Pluralist-Limited need 2rely on govt:do on ones own,govt can b influenced through lobbyin, direct &speed of outcomes depend on power in the relative process. Statist - Decisions in hands of small group if decisions makers at top of govt, Slack n info flow a problem n thus error prone, Quick decisions possible. Corporatist –Nothin works without associations getting involved, Typically consensus-oriented, Often Slow decision makin but implementation can b fast. States and Implementation- 2 categ : 1.Rule based: “bureaucratic” eg Scandinavia, 2. Relationship based: “patrimonial” eg Southern Europe, Most Asia. Implementation mode tells abt the cost n reliability of govt processes. Heuristics on Implementation – B- low uncertainty, low corruption, ^institutionalized trust, nightmare:bad rules imple bureaucratically? P – ^ uncertainty, ^corruption, low institutionalized trust, Nightmare: gud rules, no implementation. 5. S- Structure 3-Varieties of Capitalism – COMPARATIVE ADVANTAGE- countries differ in endowments of Fac of Production (US-capital abundant, Brazil -labor abundant), guds differ in factor intensities(takes more capital relative 2labor 2make computers:takes more labor 2capital 2make shoes). Smth is abundant, it is cheap. Country will export gud whose production require more use of FOP that it has in relative abundance. Prediction: countries with differing factor endowments trade more with each other. In wealthy countries, consumers spend smaller fraction of income on basic nessacities n spend a large on capital intensive guds as electronics n automobiles. Institutional arrangements generate differing comp advant among ^income countries. Long term orientation (Cordinated market economies)vs short term orientation (liberal market economies). CMEs –corporations focus on longterm competetivness n don’t fase quarterly earnings pressures, capital tends 2b invested 4long term. Workers hav more job stability and stay employed in 1position4 long time, making more immobile.eg Germany. LMEs- Corps focus on meeting quarterly earnings expectations2 increase company share price, o investors quickly sell stock n move money elsewhere,capital is more mobile. Workers r laid off during downturn 2cut costs n they change jobs quickly, labor is mobile. Eg US, UK. 5 institutions complement 1another – 1.Financial system, Industrial relations, internal decision making of firm, education n training, inter company relations. FS-CMEs-longer term financing as bank lending, builds on long term relationsip of mutual trust. LMEs: Shorter term financing via equities market. Focus on shareholder’s quarterly earnings expectations. Managers’ compensation tied 2firm share price. IR-CMEs- firms competitiveness ties 2^skilled labor force in firms specific product. 2avoid poachin, wages set via bargains between trade unions n employer associations. Worker hav voice on layoffs n workin conditions. Long term employment common. LMEs- top managt has unilateral power 2hire n fire. Labor markets r ^ly fluid. Marke decides wages. Shorter term emplyt common. IDM-CMEs-consensus decisn making-top mamagers must get agreement from employee reps, shareholders, sup n customers. LMEs - mangers r delegated unilateral decision making power-incentive 2 enhance earnings by cutting costs n increasin profits 4next quarterly earnings statement. Edn n Tr: CMEs- workers acquire company specific skills, apprenticeships common, employer associations n unions supervise publicly subsidized trainin system. LMEs- Vovational trainin focuses in general skills – Firms wont pay 4 workers who may leave, wokers want general skills 2take 2many firms in case of layoffs. Int Com Relations CMEs- sharing R&D costs n technology, education n training, wage n employment bargaining. LMEs – interfirm collaboration on project by project basis – tech transfer occurs by movement of scientists n engineers between firms- standard set by market races:winners license tech 2many users. Implications:National Competiveness – CMEs –better ^quality production,more financial services toward longer term leding n invest, as private bankin, public pension funds n corporate lending. Incremental innovation :autos. LMEs –better at lower cost, ^volume production. More financial services towards capital markets. Radical innovation:internet, biotechnology,nanotechnology. 6. S.S 4- State led development – what institutional patterns? Asset specificity *specific=relationships matter:coordinated market economies *long term financing via bank lendin *general –arms length:liberal market economies *short term financing more common, voa stock markets(equity). Conclusions: 2 forces make China banking oriented. 1.developmental strategy :state led development *banks play central in directin financing 2 firms 2. Domestic political stability is chinese leaders ^est priority. *farmers and workers. Both are promoted by promotion system. 7.Corruption: abuse of entrusted power for private gain. Reasons: oil creaky buearacratic machines, supplement bureaucratic pay so bureaucrats work harder, work around stupid rules, all other competitors do it, getting contracts abroad is a patriotic duty towards ones home country, will contribute to GDP, Adverse effects: politicl instability, ^transction costs n uncertainty, reduced investment in FDI, ^capital outflows, reduced public expenditures, weak physical structure, squandered/misdirected entrepreneurial talent. 8. Internatonl regimes: states keep trade goin through intr regimes. Logic: beneficial, growing size of pie, society is better off. But, industries suffer from competition. Then stargey 4them is 2pressure govt 4help o protection. Once govt help, other govts do same.=free trade break down, everyone worse off. Solution: create interna set of rules (regime) – state negotiate rules. Supporting orgz monitors, adjudicates, sets penalties.important; provide excuse to domestic constituents y no help is possible. 3models – 1.liberalism –AIP-domestic n intern actors/naïve view:everyone wants 2coorporate;more realistically:actors self interest/ political power from various sources. 2.Hegemonic stability theory:AIP- Hegemon/malign hegemon:exploit other states as much as possible benign hegemon:let others benefit as long as own benefit>cost of maintainin system/ military strength;underlyin that, economic strength,resources. 3. Institutionalism: AIP- Internat Orgnazs (WTO,IMF)/ maintain n expand existing institutional structures/ normative power (ideally track record of gud outcomes). 9.EU: covers most Europe , major economic palyer. Political sonstruct 2prevent European war through economic integration. Decisions r inter govnmental n lowest common denominator. 11. Power transition n the future of international relations: 3 main frameworks 2 understand international politics: 1.Liberalism -AIP- Relationship with conflict -domestic n international actors/naïve view:everyone wants to cooperate; more realistically; actors’ self interest/political power from various sources(see session 2 slides)/diverging interests of actors can trigger conflict. 2. Realism- AIP- Relationship with conflict- soverign nation sttes (i.e nothing domestic matters)/survival in an anarchic world/military strength,economic strength/change in balance of power across states triggers conflict. 3.Institutionalism- AIP- Relationship with conflict – states, international organizations/ contingent on institutions / see realism,plus power derived from institutions/ strong institutions reduce risk of conflict. For liberalism, there are 2 speacial cases related to the question of conflict,esp war. 1. Democratic peace 2. Commercial peace – 1. DP- Mechanism: liberal- democracies do not fite each other -> spreading liberal democrazy brings peace. Cause – Liberal democracies respect each other/liberal democratic decision making reigns in decision makers. Critism- Few democrazies before WWII/cold war later prevented war/almost did fight. 2. CP- Mechanism- interdependent nations find it too enpensive to go to war -> spreading trade brings peace. Causes: States r lookin to maximize prosperity for their individual citizens, which is

prediction is peace though there mayb non military conflict/ check if both countries r economically ^ly independent. the more likely tht institution is a genuine constrant on conflict. Apply AIP as u know it. Criticism: Wars despite high interdependence eg 1914/lots of states seem to care little about prosperity of citizens. states build n maintain institutions n look 4 positive sum outcomes Eg factors triggering : rise in relative power. no against power)/when survival seems secure.trends in the above.achieved by peaceful trade. Which framework depends on the situation: realist thinkin more prevalent when the concern is with an existential threat to state(states balance against percieived threats. Shortcut: international regimes work well 4 economic matters n badly 4 security matters . military conflict.esp military/forms of govt perceived 2b alien and hostile/adverse historical experience without closure/absence of strong institutions checking hostile behavious/ absence of economic interdependence. Prediction: evenly matched:peaceful/not evely matched:expect weaker side to try to find allies to balance the stronger/one side gaining relative power:conflict ahead. If yes. User manual 4 liberalism: check if both countries r democracies. (not dependent) if yes ^ chance of peace.large volume of mutual trade and FDI. User manual 4 realism: Actors:given /Interests:given. Prediction: more compliance. esp if democratic peace does not appl and if u wan tto know abt possible non. User manual 4 institutinalis: check strength of insituions in the areas-memebership in the regimes(UN/WTO)/record of compliance n corporation if the states in question. Power: compare-militiary strength. economic strength.