BSc in International Business and Politics

Copenhagen

Global Political Economy

Exam April 2011
Student:
Nenad Krstevski
CPR: 131082-2945 .....................................

Project size: STU 18032

Number of pages: 9

Copenhagen, April 14th, 2011

Nenad Krstevski Global Political Economy
CPR: 131082-2945 Spring 2011

Table of Contents
Introduction ................................................................................................................................................ 2
1. Concepts on GPE ................................................................................................................................. 3
 State ................................................................................................................................................ 3
 Corporations ................................................................................................................................... 4
 Globalization ................................................................................................................................... 4
2. Theories on GPE .................................................................................................................................. 5
 Rational choice theory .................................................................................................................... 6
3. Context for business regulation .......................................................................................................... 6
4. The Shifting Power Equation ............................................................................................................... 7
Conclusion .................................................................................................................................................. 9
Bibliography .............................................................................................................................................. 10

Introduction
Question 3)
“The sustainability of Davos hinged on the unanticipated but highly effective blending of
voice and material capabilities, stylistic performances and operational delivery. In this
light it seems particularly appropriate that the forums main theme in 2007 was “the
shifting power equation”. (Cooper, p. 225)

If you want to see the world as a whole, the best view is from the moon. The second
best is from Davos.1
The yearly meeting of the WEF gives a unique top-down picture of the world's
possibilities and problems. The main reason for this is simple. Globalization is, in the first
place, an economic phenomenon. No one has a wider global perspective than the
participants there. All other kinds of globalization, cultural, legal, political, moral, trail
behind the economic.

1 Garton Ash, Timothy: 2007;

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I will start discussing on the beginning about main concepts of the GPE focusing on
state, the companies and globalization. After that will mention some perspectives and
theories of GPE and explain the rational choice theory which is important for this paper.
Main sources and institutions of international and global business regulation are going
to be explained in the following chapter. This is important so we get familiar of the
context for business regulation.
My main analysis is in the last chapter and it is about the shifting power equation. I will
talk about more ways how global governance has shifted from monopolar to multipolar
centers and especially about celebrity diplomacy. On the end I will conclude my findings
from the analysis.

1. Concepts on GPE
The six central concepts of global political economy are the states, corporations, capital,
power, labour and globalization.2 In order to understand the phenomenon of global
governance it is necessary to explore the complex relationship between state,
business(corporations) and globalization, which are the main three concepts in global
political economy.

 State
Good example how the state is the actor in international political economy is IMF. It is
based from most of the world countries, but the most important are the ones who have
the biggest percentage of the votes and those are the ones who contribute with money
the most.
Even its power is not based on hard power like laws and constitution, but on soft law
e.g. regimes, which function on a base that if one member doesn’t obey the rules it can
face some sanctions from another states. The biggest influence has US and the G-7
group with more than 47% of the votes, so if the US government wants to put some
pressure to other country to open the market, and in the same time US market to stay
not so available for the other states, it can easily do it because of its voting power. That
is what happened in South Korea during the Asian crisis, when IMF loans made Korea to
open the manufacturing and financial industries for foreign investors, many of whom
were from US.

2
Ronen Palan; 2000;

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The states retains pivotal role in creating and maintaining governance in the global
system because of the centrality if the connection between law and political authority.
The state is the central legal actor and primary representative of individuals in the
international system. Agreements binding the population of a country can only be made
by a state. While its representative function is often imperfect, the state is the only
institution that can make a legitimate claim to represent its entire population on its
territory. Not all of the states are equally important in international political economy.
The most developed and wealthy states are the most significant because they can veto
or coerce other states to follow particular sets of policies. Thus, the US is the central
actor because of its wealth and power.

 Corporations
Transnational corporations are seen as an increasingly influential factor in formulating
the policies that are instituted at a global level and as an actor influencing the decisions
of the state elites.
A good example ho corporations can influence global governance is given by accepting
from WTO the intellectual property rights.3 Copyrights for books and music, as well as
patent protection for scientific discoveries and inventions, even that they don’t really
fall under the roof of free trade since they will not increase the flow of goods between
states, they got enforced as a responsibility to all members of WTO.
In the run for profits the companies will try to influence the structures of global
governance. Every corporation has different goal, and follows a different tactics to fulfill
their goal. If the power of the company is big than they will try to shape governance
structures by influencing states, international organizations, other corporations and civil
society behavior so that they fulfill their goals.

 Globalization
The interests of the corporations are with no doubt the biggest driver of the
globalization. In depth literature has been written on the topic of why corporations and
countries should engage in international trade and activities. David Ricardo was the first
to really formulate a model of the benefits of international trade on the country level,
and this was the model of comparative advantage (Krugman and Obstfeld). Later
classical economic theory also advocate that joint markets are more effective than two

3
O’Brien and Williams; 2007; p.392

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separate markets, in terms of output, lower price and higher welfare (Krugman and
Obstfeld). Furthermore, extensive research also attempts to explain the behavior of
corporations and their cross country activity.(Dunning’s OLI-paradigm and Vernon’s
product cycle (Ougaard, 2010)) Both texts stress the desirability of being able to operate
on global markets and thus gaining access to competitive advantages, wherever they
may exists, tech know-how in Denmark and cheap labour in China.

Within the world of business there are of course different views on global governance
depending on how each firm or industry can benefit from global governance, as shown
by Falkner (2010). However, there can be little doubt about the assertion of TNC are
indeed a key player in pushing the process of globalization forward. As the globalization
becomes more and more complex, the economies of the world also become more and
more integrated. There also seems to be made a convincing argument for the fact that
business as a whole has considerable power to influence national policy and interest as
well as global governance. This is evident in the financial sector as shown by
Tsingou(2010), where the private sector indeed exercised much influence technical
support in setting up the Basel II accord.

2. Theories on GPE
For this paper the main difference between neo-liberalism and neo-realism as
perspectives can be summarized in the following sentence: Whereas neo-liberalist
scholars explain international cooperation and institutions as a result of mutual interest
among participants, the neo-realist scholar will put his or her emphasis on at the single
states interest, especially the powerful state’s interest.
I will provide a short note on why int. institutions occur before I explain the specifics for
some prominent methodologies for GPE. Explanations about this has been given by
Ougaard’s chapter of global persistence functions and by Zacher and Sutton(1996)
through the notion of mutual interest. In Ougaard’s chapter, the national persistence
function (the state’s “responsibilities” to the country) can be translated to the context of
international cooperation and institutions. That is, there are elements such as
(re)production and qualification of the labour force and population, facilitation of
preconditions of a global market economy, the maintenance of global social order and a
global responsibility for environmental issues (Ougaard, 2004, p. 144). Zacher and
Sutton go along the same lines, and have an emphasis of the existence of int.

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institutions due to the benefits of cooperation in theirs notion of mutual interest. An

obvious example is in particular in environmental and economic issues, where states
realize that by int. cooperation most market failures can be best corrected. One
example is recently seen in the financial crisis, where some central banks coordinated
their efforts to fight the recession.

 Rational choice theory

For my paper important theory is the rational choice theory. Rational choice theory or
rational choice analysis focuses on individual choice under conditions of uncertainty. It is
dominant in contemporary neoclassical economic scholarship, and extremely influential
in US political science.(O’Brien and Williams, p.34) It explains the outcomes in the GPE
on the foundations of the preferences of individual actors (or individual person or group
who are supposed to be acting as individual). Inside this framework, actors are assumed
to be utility maximizers (they try to maximize their benefits and minimize their losses).
Individuals attempt to, by calculating benefits and costs before they chose the best path
of action, to make themselves better off. Rational choice theory has been used
extensively to analyze trade and cooperation problems in IPE (Carlson, 2000).
Other prominent theories of GPE are neo-institualism, game theory, development
theory and others, but because of time and space for the project I’ll not go into them.

3. Context for business regulation

The authors, scholars John Braithwaite and Peter Drahos, 4 draw seven general
conclusions about the actors involved in the globalization of business regulation.
USA and EU are by far the most influential actors in the globalization of business
regulation. OECD is the single most important builder of business regulation
epistemic communities.
Large USA corporations are the most consistently effective actors in enrolling
states and powerful int. organizations,
The Int. Chamber of Commerce (ICC) is an important actor in the globalization of
business regulations which has successful strategies:
o Use interests groups,
o Collect information from members on customary practices and then
release these practices in the form of model rules and agreements.

4
Based on their interviews of 500 individuals across 13 business arenas, scholars John Braithwaite and Peter
Drahos draw a series of conclusions about the processes of the globalization of business regulation

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Individuals may exert a tremendous influence over business regulation by

enlisting the support of the CEO of a powerful corporation who, in turn, enlists
the support of a powerful state actor
Obscure technical committees of powerful international organizations and
standard-setting bodies serve as potent forums for shaping global regulation
In the 1980s and 1990s many governments moved away from directly regulating
behavior to monitoring the self-regulatory organizations of the business arenas,
known as the “regulatory state”5
Authors Braithwaite and Drahos, describe the places where business regulations are
created as forums. These forums have a wide variety of features, depending on the
circumstances and the actors involved. Also, actors can use different forums
strategically. Some examples of different forums in which rules for global business are
made include: 6
Organizations of states include UN, WTO, OECD and some int. courts or tribunals,
NAFTA, NATO.
Int. financial institutions include entities as IMF, World Bank, EBRD.
Business organizations like the Int. Chamber of Commerce which are important
because include important forums for mediating disputes
Professions are defined by their areas of expertise and professionals participate
across other forums.
Organizations based on shared commitments like NGOs with interest in how int.
business occurs

4. The Shifting Power Equation

2007's theme at the WEF yearly meeting - the shifting power equation – just confirmed
the opinion of many participants that power is running away from the US to multiple
centers since countries as BRIC which moved beyond emerging market status and
establish themselves as major players on the world scene.7
The conference topic has also confirmed the panic in traditional business circles as
power moves away from the producer and goes to the consumer thanks to the Internet
and the digital distribution revolution.
We should look the shifting of power on two ways, both horizontal and vertical. The
horizontal shift brings a new multipolarity, and it’s the one that is more obvious. Even,
for most of mankind history the world was multipolar. But the global poles in the past -
say, the Ming, Ottoman and Mughal empires in the XVIth century - only cooperated at

5
Braithwaite, John and Drahos, Peter: Center for Law and Globalization;
6
Braithwaite, John and Drahos, Peter: Center for Law and Globalization;
7
Gardels, Nathan: 2007;

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the edges.8 Now every great power interacts with every other great power, in a
multilateral, globalised geopolitics. A globalised world that is a product of more than
500 year long dominance of the west, and what by the historian Theodor von Laue is
called "the world revolution of westernisation". But as always what goes up has to go
down and that supremacy is seeing the end. What we are witnessing, after half a
millenium, is the renaissance of Asia and some other emerging markets. BRIC are
playing the economic game on terms largely invented by the west, but they are better
than the west at its own field. Now, their growing and already huge economic power is
beginning to be shown into political and military power.
Now, the emerging economic giants from Asia are competing with the profligate
consumer economies of N. America and Europe for finite hydrocarbon energy sources
and raw materials. This strengthens another category of powers, which one might call
the exploitative powers. The real example is Russia. Now, Russia with its leadership of
Putin is strong because of gas and oil. The same reasons why S. Arabia, Iran, and other
exploitative powers are. The interaction of these two major trends - Asian renaissance
and energy race - shapes the new multipolarity.9

Other important shift is the vertical shift, from states to individual (non-state) actors,
very often empowered from new technologies. Int. terrorism is one noticeable example,
using new technologies both of destruction and communication. But there are lots of
other. International NGOs like Oxfam, Human Rights Watch, Transparency International
and Soros's Open Society have the power to move things and create attention for some
issues. Most of the corporations heavily represented in Davos are most of the time
more powerful than lots of smaller states. To connect the leaders of these companies
with our theory from the curriculum, some literature with Carlyle-like orientation says
that the leaders of these companies are like business superman 10. Just to name some of
them like Jack Welsh/GE, Jeff Bezos/Amazon who are concentrated only in successful
leadership in their companies mostly for their personal gain. International organizations,
communities and networks, from UN and EU to the WB and the Int. Criminal Court, all
take their slice of the power cake.
At the other end, some individuals like bloggers or citizen-journalists are making history
by posting a blurred video sequence from his or her mobile phone on YouTube, Twitter
or Facebook.

Interesting phenomenon is the multilocation which is a tendency of business leaders to

stretch their boundaries, or sites of activity, beyond the boardroom to some very crucial
areas of transnational social representation. One aspect of this tendency of leading

8
Garton Ash, Timothy: 2007;
9
Garton Ash, Timothy: 2007;
10
Cooper, A.F.: 2008;

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business elite is their representation as celebrity icons, because of their success as

transnational representatives and not only as a successful business leader. There is
another element and that is the connection between corporate elite and other elements
from entertainment world, which collectively is defined as celebrity diplomacy. 11
Together they create a special distinctive network which has a distinctive ability to
connect to wide audiences and to grab the attention of extremely important
international leaders.

Example of this celebrity diplomacy is a partnership between George Soros and Bill and
Melinda Gates with the frontman of U2 Bono and the actress Angelina Jolie. This group
doesn’t need to use formal institutional settings such as UN or the G8 to attract
attention but they can do that on forums like the World Economic Forum at Davos.
As celebrities push for recognition and support, by becoming connected in the
transnational policy making, the political elite use celebrities to boost their own
credibility. This interplay is consolidated by the combination of public and symbolic and
material resources that celebrities can generate. Celebrity diplomacy emphasizes global
reach in terms of for activity when and where is needed and for problem solving.

Conclusion
So after the small analysis and the introduction of the main terms I can conclude that
the new power equation is a complex one. This means of course that the world is more
difficult to "manage" in the way the old power once was managing. The existing
international institutions no longer reflect today's complex realities and that’s why they
are under constant reforms. This world needs badly new structures of global
governance, but the very multi-level, multipolar diffusion of power makes that harder to
achieve.
According to a report in the International Herald Tribune, a couple of years ago the NIC
of US played lots of scenarios for the World in 2020. The only reasonably attractive
option was one in which multiple powers addressed global challenges jointly with non-
state actors. They called it "Davos world".

11
Cooper, A.F.: 2008;

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Bibliography
-Tsingou, Eleni, 2010; Transnational Governance Networkd in The Regulation of Finance – The making of
Gloobal Regulation and Supervision Standards in The Banking Industry; In Ougaard and Leander;

-Ougaard, M; Introduction to Business and Global Governance; in Ougaard and Leander (2010);

Zacher and Sutton, 1996; Governing global networks. International regimes for transportation and
telecommunication; Cambridge: Cambridge university press, chapters 1-2.;

-Ougaard, M; Political Globalization; Houndmills: Palgrave Macmillan 2004

-O’Brien, Robert and Williams, Mark; Global Political Economy, 2 nd edition; 2007; Palgrave MacMillan,
New York;

-Krugman, Paul and Obstfeld, Maurice; International Economics; 8th edition (international edition), 2009,
Person, Addison Wesley;

-Falkner, Robert, 2010: A Neo-pluralist Perspective on Business power in Global Environment

Governance in Ougaard and Leander (compendium in business and global governance);

-Ronen Palan, "Global Political Economy: Contemporary Theories (Routledge/Ripe Studies in Global
Political Economy)", 2000;

-Davos Forum Discusses 'Shifting Power': Radio Free Europe; 2007;

http://www.rferl.org/content/article/1074266.html;

-Cooper, A.F.: Beyond the Boardroom: "Multilocation" and the Business Face of Celebrity
Diplomacy; 2008;

-Garton Ash, Timothy: Davos 07: how power has shifted; The Guardian; January 24, 2007;

http://www.guardian.co.uk/commentisfree/2007/jan/24/davos07howpowerhasshifted ;

-Gardels, Nathan: America no longer owns globalization; The New York Times; January 24, 2007;
http://www.nytimes.com/2007/01/24/opinion/24iht-edgardels.4324766.html?_r=1;

-Braithwaite, John and Drahos, Peter: General Features of Global Business Regulation; Center for Law
and Globalization;
http://clg.portalxm.com/library/evidence.cfm?evidence_summary_id=250029;

-Braithwaite, John and Drahos, Peter: General Features of Global Business Regulation; Center for Law
and Globalization; http://clg.portalxm.com/library/keytext.cfm?keytext_id=57;

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