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The Challenge of Global Capitalism Hardcover – February 22, 2000
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Many individuals proclaim that global capitalism is here to stay. Unfettered markets, they argue, now drive the world, and all countries must adjust, no matter how painful this may be for some. Robert Gilpin, author of the widely acclaimed Political Economy of International Relations (Princeton, 1987), urges us, however, not to take an open and integrated global economy for granted. Rather, we must consider the political circumstances that have enabled global markets to function and the probability that these conditions will continue. Gilpin's new book amounts to a magisterial inquiry into all major aspects of the contemporary world political economy. Beginning with the 1989 end of the Cold War and the subsequent collapse of communism, it focuses on globalization and rapid technological change and covers a broad sweep of economic developments and political cultures. Gilpin demonstrates the fragility of a global and integrated economy and recommends what can be done to strengthen it.
The international community has another chance to solidify the global market economy that collapsed with the outbreak of World War I. Yet, writes Gilpin, the full implications of this historic development for international affairs are not yet clear. Will socialist economies make a successful transition to market-type economies? What role will a dynamic China play in the world economy? Will the United States continue to exercise leadership or gravitate toward self-centered policies? Gilpin explores such questions along with problems in the areas of trade liberalization, multinational corporations, and destabilizing financial flows. He also investigates the struggles of less developed countries and the spread of economic regionalism, particularly in Europe, North America, and Pacific Asia, which directly threatens an open world economy.
The author maintains that global capitalism and economic globalization have rested and must continue to rest on a secure political foundation. However, this foundation has eroded since the end of the Soviet threat. To ensure survival of the global economy, Gilpin concludes, the United States and other major powers must recommit themselves to working together to rebuild its weakened political foundations.
- Print length392 pages
- LanguageEnglish
- PublisherPrinceton University Press
- Publication dateFebruary 22, 2000
- Dimensions6.75 x 1.25 x 9.75 inches
- ISBN-100691049351
- ISBN-13978-0691049359
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Gilpin educates about globalization, but not as an apologist. Rather, he is quick to point out globalization's faults and to call for corrective measures. Gilpin insists "the fears arising from globalization must be addressed and must not be rejected out of hand." In the United States this means "solutions must be devised for the problems of growing income inequality, the plight of low-skilled workers, and job insecurity. Reforms should include strengthened safety nets, greatly expanded job training, and a new social contract between capital and labor."
The basic argument is that free markets create excesses which can only be eliminated by international intervention. Such interventions were frequent and reasonably effective during the period just prior to World War I and in the free world after World War II. Professor Gilpin argues that parochial American leadership since the end of the cold war has undermined the international political system for stabilizing the international economy. He calls for stronger American leadership in forging a better coalition with the European Union countries and Japan.
The central thesis of the book is sound in one area: Unrestrained capital flows can create distortions in a world in which everything else (businesses, people, and trade flows) are not nearly so unrestrained. The problem here is that these rapid capital flows out of a country primarily occur because of years of earlier abuses (as I describe in The Irresitible Growth Enterprise) such as speculative spending on infrastructure and investments that are not needed (as happened in several Southeast Asian countries prior to their currency crises in 1998).
Virtually every problem that Professor Gilpin warns against and wants to solve with international authority is really created by poor national economic policies. We would probably create sounder world economic growth if we focused on encouraging all nations to pursue sound lending, appropriate national borrowing, and constructive trade policies (our attention is usually focused on the last). Where governments are weak or corrupt, abuses will always develop and linger. My counterargument would be that strong democracies will almost always pursue reasonably sound economic policies. Solve that problem of governmental form and effectiveness of political process at the national level, and the world economy will be sound. If this counterargument is right, then we may need a second generation of informational efforts in favor of effective democracy, in the same way that one was needed during the cold war through Radio Free Europe and Voice of America.
At another level, much of what is described here as weaknesses and problems can be attributed to weak currencies. Again, informational efforts and research could help countries with weak currencies appreciate how to strenthen those currencies. Certainly, pegging to stronger currencies is proving to be effective in many cases. Pegging to a basket of stronger currencies might work even better. There could even be a role for pegging to sound economic policies to change expectations, as some South American countries have done.
Many of the worldwide risks today relate to the U.S. trade imbalance. In the same way that greater public awareness and an economic boom led to eliminating the U.S. budget deficits, the trade imbalance can be solved. Again, this is a national issue, not an international one. The weak savings rate in the U.S. can also be solved by changing the tax laws, again at a national level.
Basically, the argument I am making is that the markets are having problems because national politics are impinging too much on free markets. In that regard, the free market of ideas that is democracy can then adjust the national politics to achieve more healthy, free market results. The U.S. should lead the way by improving the savings rate and reducing the trade deficit. That would take many of the strains off of the world economy, and create the basis for another ten years of economic boom in the United States. Can our U.S. politicians get together and work on this after the November election? I certainly hope so.
Another area where Professor Gilpin is misfocused is in his concern about the growth of trading blocs like the EU and NAFTA. Actually, these blocs are creating freer markets within them and are an unavoidable precursor to creating the same level of freedom internationally with all countries. If there were three trading blocs in the world, they would simply merge into one at some point. That would be progress.
Complexity science tells us that having many countries pursuing their own ideas of economic prosperity will work better than having an internationally coordinated system. And the more intelligent, responsive, and focused those countries are, the better the whole system will work.
After you have finished reading this book, can you think of other places where we rely on precedent too much in our thinking rather than potential? If you find any of this happening in your own thinking, how can you learn to seek out better solutions rather than simply aping past solutions?



