POL 5032 WEEK III (First of two posts)

I have already posted commentary by Mark Blyth for this week’s discussion, but as I have received questions from you and a note from Michael Power, I feel that a second post is now necessary.  The questions we need to debate tomorrow in class are as follows:

a).  What are the key paradigms that underpinned the Bretton Woods international financial system?  In your opinion, how influential were John Maynard Keynes and later Friedrich von Hayek?

 b). What, in your view, was the primary cause in the breakdown of the Bretton Woods pegged exchange rate system?

 c). How Important is the ‘Unholy Trinity’ for understanding the current floating-rate system and the potential for cooperation among the world’s leading nations in international monetary affairs?

 d). In terms of the arguments espoused by Michael Power, what attracts FDI and how do states in the developing world compete with developed states to attract FDI?

e). Would you ever consider reintroducing capital controls into the global financial system?

 f).  How would you compare the EMS crisis of 1992/93 with the financial crisis of 07/08?

 First, the key to open the discussion is to understand how the Bretton Woods financial structure moved from a paradigm underpinned by Ruggie’s ‘Embedded Liberalism’ to one of floating exchange rates after capital controls were dropped.  Indeed, we must also understand that dropping capital controls led directly to the notion of the Unholy Trinity. 

Second, I have made no secret of the fact that I believe that ‘Austerity’ is a wrong-headed idea that has never worked, and the debate over whether a state can ‘cut its way to growth’ will be a central theme that I shall be happy to disabuse.

 Third, we should understand where, in Michael Power’s terms, the investment opportunities of tomorrow lie.  Here below is his answer:

Geographically, the regions of tomorrow are as follows:

 The centre of economic gravity is shifting sharply towards China-centred East Asia and, over the next decade, this will expand to include the two Indo’s – India (whose GDP growth rate could overtake China’s this year) – and Indonesia.
 
The demographic drag seen in Japan – which has heavily contributed to their two lost decades – is spreading to Europe and by 2020 will be evident even in the US as baby boomers continue to retire en masse.
 
The other region I am optimistic about is the Indian Ocean Basin. In Africa, watch East Africa much more than Southern Africa. In Latin America, the most successful countries will be the Andean Three – Colombia, Peru and Chile. Central Asia will gradually be drawn into the orbit of East Asia.
 
The sectors of tomorrow include:

·       Robotics  ·     Biotechnology  ·   Interconnected “intelligent electronics”
·       Alternative energies – solar, wind, thermal  ·  Desalination 
·       The driverless, electric car  · Nanotechnology  · Advanced materials (e.g. graphene) 

·       Machines powered by Artificial Intelligence  ·    3D printing