Spiro: The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets

DE Spiro, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets (Cornell University Press, 1999).

"The successful resolution of the disequilibrium in global balance of payments caused by the oil price revolution was one of the most remarkable achievements of the postwar era. Nearly 500 billion petrodollars were recycled from oil producers with a capital surplus to countries with trade deficits. A major threat to the international economic system was overcome, and the stability of that system was preserved. This book asks how the challenge of recycling petrodollars was successfully resolved" (1).

In the 70s and early 80s, OPEC nations raked in much money through oil exports and did not balance this income with a similar level of imports. In other words, they ran a budget surplus based on export income. The global balance of payments, therefore, required that other nations run a net deficit in total trade.

"Recycling petrodollars was the process by which the oil exporters' surplus financed deficits elsewhere in the world. Recycling challenged cooperation among the advanced industrialized democracies and the stability of the international economic system in the distribution of trade deficits...and in the distribution of capital" (1-2).

The deficit requirement led to a situation where cooperation was potentially tenable. Nations may try to protect themselves from these spending pressures through protectionism, however, this was sure to fail if all nations participated. Then, if nations did decide to shoulder part of the deficit, competition could intensify between a variety of nations vying for petrodollar supports for their deficit spending.\

"For the sake of the stability of the international monetary system, only one nation could have assumed the role of providing a key currency for recycling. Without such leadership, there was a strong possibility of mutually destructive competition for capital. Yet this form of leadership also carried with it the potential for exorbitant privileges. If the United States competed for capital unilaterally, and then made other nations come to terms for access to that capital, the result would be predatory leadership that was not in anyone's interest except that of the United States" (4).

A variety of contending explanations are offered for petrodollar recycling:

Market Forces:

"Neoclassical economists believe that the price mechanism...comes about automatically when individuals are permitted free access to supply and demand...When free markets are allowed to develop, international cooperation and harmony are automatic" (6).

Institutions:

"The problem that liberal institutionalism addresses is the difficulty nation-states have in reaching cooperative agreements, even when they share interests in cooperation" (8).

Hegemony:

"According to structural realists, stability in the international political economy is provided when one nation serves as a leader or 'hegemon'" (9).

Ch 2: Defining the Principles of Allocation:

"This chapter explores the problem American policy makers perceived in petrodollar recycling, the threats of that problem to international cooperation, and the meaning of that threat to the shared concept of international legitimacy. I examine the agreed-upon and legitimate roles of authoritative leadership and of international markets in distributing balance-of-payments financing...What was considered legitimate, and what constituted illegitimate intervention in the system" (19).

"A necessary precondition of the smooth functioning of international financial markets is the provision (by a hegemonic power) of the three goals of an international monetary order: confidence, liquidity, and a balance-of-payments adjustment mechanism" (21).