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).
Showing posts with label Hegemonic Stability Theory. Show all posts
Showing posts with label Hegemonic Stability Theory. Show all posts
Sunday, December 7, 2008
Monday, December 1, 2008
Gilpin: US Power and the Multinational Corporation
R Gilpin, US Power and the Multinational Corporation: The Political Economy of Foreign Direct Investment (Basic Books, 1975).
Chapter 1:
Gilpin begins this piece by exploring two schools of thought on the relationship between international capital and the nation-state. One school believes that the state should be continuously eroded as it is both poorly suited for this differently structured world. The other school of thought argues that the nation should be bolstered and buttressed and act as a balance against the power of international capital. This debate, however, is not as novel as many have made it out to be.
"The argument of this study is that the relationship between economics and politics, at least in the modern world, is a reciprocal one. On the one hand, policies largely determines the framework of economic activity and channels it in directions intended to serve the interests of dominant groups, the exercise of power in all its forms is a major determinant of the nature of an economic system. On the other hand, the economic process itself tends to redistribute power and wealth; it transforms the power relationships among groups" (21-2). "thus, the dynamics of international relations in the modern world is largely a function of the reciprocal interaction between economics and politics" (22).
Gilpin then defines politics and economics. He uses Kindleberger's distinction in methods of distributing resources, either through the market or the budged. He then cited Keohane and Nye's work on the international political economy. "[They] define economics and politics in terms of two levels of analysis: those of structure and of process" (22).
"In this study, the issue of the relationship between economics and politics translates into that between wealth and power. According to this statement of the problem, economics takes as its province the creation and distribution of wealth; politics is the realm of power" (22). Gilpin goes on to acknowledge that the concept of power and wealth are complex, but attempts to provide operational definitions. Wealth: anything that can generate future income (23). Power: from Morgenthau: "Man's control over the minds and actions of other men" (24). While there is a separation between these two concepts, Gilpin argues that it is only analytical, and that they are practically always intertwined.
This chapter focuses on three major schools of thought in IPE: liberalism, Marxism and mercantilism. "Liberalism regards politics and economics as relatively separable and autonomous spheres of activities...Marxism refers to the radical critique of capitalism identified with Karl Marx and his contemporary disciples; according to this conception, economics determines politics and political structure. Mercantilism is a more questionable term because of its historical association with the desire of nation-states for a trade surplus and for treasury...One must distinguish, however, between the specific form mercantilism took in the seventeenth and eighteenth centuries and the general outlook of mercantilistic thought. The essence of the mercantilistic perspective...is the subservience of the economy to the state and its interests" (25).
Table 6: (27)
The author explores the differences in the above three schools of thought in more detail.
"My own perspective on political economy rests on what I regard as a fundamental difference in emphasis between economics and politics; namely, the distinction between absolute and relative gains. The emphasis of economic science...is on absolute gains; the ultimate defense of liberalism is that over the long run everyone gains" (33). "The essential fact of politics is that power is always relative; one state's gain in power is by necessity another's loss. Thus, even though two states may be gaining absolutely in wealth, in political terms it is the effect of those gains on relative power positions which is of primary importance" (34).
The author then expands upon the importance of relative power.
If, however, relative power is so important, why is there an international liberal economy? This is partially explained through hegemonic stability theory and the work of Kindleberger. "The argument of this study is that the modern world economy has evolved through the emergence of great national economies that have successively become dominant" (40). "An economic system, then, does not arise spontaneously owing to the operation of an invisible hand and in the absence of the exercise of power. Rather, every economic system rests on a particular political order; its nature cannot be understood aside from politics" (40-1).
"In brief, political economy in this study means the reciprocal and dynamic interaction in international relations of the pursuit of wealth and the pursuit of power" (43).
Chapter II:
"The thesis of this chapter is that foreign investment is a strategy employed by both rising and declining dominant capitalist economies--for quite different reasons. Although a strategy of foreign investment has been central to both the British and the American experience as alternately rising and declining industrial powers, there has been no analysis of foreign investment from the perspectives o fits role within the dynamics of international relations. For this reason, this study will examine British portfolio investment in the nineteenth century and American direct investment...in the context of international political change" (45).
Foreign investment is not, obviously, the only way that political power can be put forth through economic metrics, as the author rightly mentions.
Two phases of investment: The first requires foreign investment because rates of savings in the core are too large. The second is a response to a relative stagnation in industrial manufacturing in the core.
"Although foreign investment is not the primary cause of the shift in the locus of industrial power from core to periphery, it both accelerates this tendency and tends to abort any effort to reinvigorate the core's industrial base" (77). "In a world of competing nation-states, wherein power rests ultimately on an industrial base, foreign investment contributes to an international redistribution of power to the disadvantage of the core" (77).
Chapter 1:
Gilpin begins this piece by exploring two schools of thought on the relationship between international capital and the nation-state. One school believes that the state should be continuously eroded as it is both poorly suited for this differently structured world. The other school of thought argues that the nation should be bolstered and buttressed and act as a balance against the power of international capital. This debate, however, is not as novel as many have made it out to be.
"The argument of this study is that the relationship between economics and politics, at least in the modern world, is a reciprocal one. On the one hand, policies largely determines the framework of economic activity and channels it in directions intended to serve the interests of dominant groups, the exercise of power in all its forms is a major determinant of the nature of an economic system. On the other hand, the economic process itself tends to redistribute power and wealth; it transforms the power relationships among groups" (21-2). "thus, the dynamics of international relations in the modern world is largely a function of the reciprocal interaction between economics and politics" (22).
Gilpin then defines politics and economics. He uses Kindleberger's distinction in methods of distributing resources, either through the market or the budged. He then cited Keohane and Nye's work on the international political economy. "[They] define economics and politics in terms of two levels of analysis: those of structure and of process" (22).
"In this study, the issue of the relationship between economics and politics translates into that between wealth and power. According to this statement of the problem, economics takes as its province the creation and distribution of wealth; politics is the realm of power" (22). Gilpin goes on to acknowledge that the concept of power and wealth are complex, but attempts to provide operational definitions. Wealth: anything that can generate future income (23). Power: from Morgenthau: "Man's control over the minds and actions of other men" (24). While there is a separation between these two concepts, Gilpin argues that it is only analytical, and that they are practically always intertwined.
This chapter focuses on three major schools of thought in IPE: liberalism, Marxism and mercantilism. "Liberalism regards politics and economics as relatively separable and autonomous spheres of activities...Marxism refers to the radical critique of capitalism identified with Karl Marx and his contemporary disciples; according to this conception, economics determines politics and political structure. Mercantilism is a more questionable term because of its historical association with the desire of nation-states for a trade surplus and for treasury...One must distinguish, however, between the specific form mercantilism took in the seventeenth and eighteenth centuries and the general outlook of mercantilistic thought. The essence of the mercantilistic perspective...is the subservience of the economy to the state and its interests" (25).
Table 6: (27)
The author explores the differences in the above three schools of thought in more detail.
"My own perspective on political economy rests on what I regard as a fundamental difference in emphasis between economics and politics; namely, the distinction between absolute and relative gains. The emphasis of economic science...is on absolute gains; the ultimate defense of liberalism is that over the long run everyone gains" (33). "The essential fact of politics is that power is always relative; one state's gain in power is by necessity another's loss. Thus, even though two states may be gaining absolutely in wealth, in political terms it is the effect of those gains on relative power positions which is of primary importance" (34).
The author then expands upon the importance of relative power.
If, however, relative power is so important, why is there an international liberal economy? This is partially explained through hegemonic stability theory and the work of Kindleberger. "The argument of this study is that the modern world economy has evolved through the emergence of great national economies that have successively become dominant" (40). "An economic system, then, does not arise spontaneously owing to the operation of an invisible hand and in the absence of the exercise of power. Rather, every economic system rests on a particular political order; its nature cannot be understood aside from politics" (40-1).
"In brief, political economy in this study means the reciprocal and dynamic interaction in international relations of the pursuit of wealth and the pursuit of power" (43).
Chapter II:
"The thesis of this chapter is that foreign investment is a strategy employed by both rising and declining dominant capitalist economies--for quite different reasons. Although a strategy of foreign investment has been central to both the British and the American experience as alternately rising and declining industrial powers, there has been no analysis of foreign investment from the perspectives o fits role within the dynamics of international relations. For this reason, this study will examine British portfolio investment in the nineteenth century and American direct investment...in the context of international political change" (45).
Foreign investment is not, obviously, the only way that political power can be put forth through economic metrics, as the author rightly mentions.
Two phases of investment: The first requires foreign investment because rates of savings in the core are too large. The second is a response to a relative stagnation in industrial manufacturing in the core.
"Although foreign investment is not the primary cause of the shift in the locus of industrial power from core to periphery, it both accelerates this tendency and tends to abort any effort to reinvigorate the core's industrial base" (77). "In a world of competing nation-states, wherein power rests ultimately on an industrial base, foreign investment contributes to an international redistribution of power to the disadvantage of the core" (77).
Wednesday, October 8, 2008
Gilpin: The Theory of Hegemonic War
Gilpin, R., 1988. The Theory of Hegemonic War. Journal of Interdisciplinary History, 18(4), 591-613.
“The essential idea embodied in Thucydides’ theory of hegemonic war is that fundamental changes in the international system are the basic determinants of such wars. The structure of the system or distribution of power among the states in the system can be stable or unstable. A stable system is one in which changes can take place if they do not threaten the vital interests of the dominant states and thereby cause a war among them…An unstable system is one in which economic, technological, and other changes are eroding the international hierarchy and undermining the position of the hegemonic state” (592).
Gilpin highlights three characteristics of hegemonic stability theory from the above quotation. The first, is that hegemonic stability theory relies on a different set of drivers than does other systemic level theories of the cause of war: it relies on exploring the broader changes in political and economic drivers. Secondly, states in an international system, broadly speaking, will interact strategically. Finally, hegemonic war does change and threaten the stability and structure of the international system.
“In summary, according to Thucydides, a great or hegemonic war, like a disease, follows a discernible and recurrent course. The initial phase is a relatively stable international system characterized by a hierarchical ordering of states with a dominant or hegemonic power. Over time, the power of some subordinate state begins to grow disproportionately; as this development occurs, it comes into conflict with the hegemonic state. The struggle between these contenders for preeminence and their accumulating alliances leads to a bipolarization of the system…As this bipolarization occurs the system becomes increasingly unstable, and a monic war, like a disease, displays discernible symptoms and follows an inevitable course.” (594-5).
“The essential idea embodied in Thucydides’ theory of hegemonic war is that fundamental changes in the international system are the basic determinants of such wars. The structure of the system or distribution of power among the states in the system can be stable or unstable. A stable system is one in which changes can take place if they do not threaten the vital interests of the dominant states and thereby cause a war among them…An unstable system is one in which economic, technological, and other changes are eroding the international hierarchy and undermining the position of the hegemonic state” (592).
Gilpin highlights three characteristics of hegemonic stability theory from the above quotation. The first, is that hegemonic stability theory relies on a different set of drivers than does other systemic level theories of the cause of war: it relies on exploring the broader changes in political and economic drivers. Secondly, states in an international system, broadly speaking, will interact strategically. Finally, hegemonic war does change and threaten the stability and structure of the international system.
“In summary, according to Thucydides, a great or hegemonic war, like a disease, follows a discernible and recurrent course. The initial phase is a relatively stable international system characterized by a hierarchical ordering of states with a dominant or hegemonic power. Over time, the power of some subordinate state begins to grow disproportionately; as this development occurs, it comes into conflict with the hegemonic state. The struggle between these contenders for preeminence and their accumulating alliances leads to a bipolarization of the system…As this bipolarization occurs the system becomes increasingly unstable, and a monic war, like a disease, displays discernible symptoms and follows an inevitable course.” (594-5).
Thursday, September 25, 2008
Mansfield: Concentration, Polarity, and the Distribution of Power
Mansfield, E., 1993. Concentration, Polarity, and the Distribution of Power. International Studies Quarterly, 37, 105.
This article argues that a more helpful metric for measuring power in the international system is not polarity, but concentration. “The argument of this paper is that, for the purposes of explaining patterns of balancing behavior, the onset of war, and many aspects of the international political economy, scholars are likely to find it useful to analyze both features of the distribution of power that have been used repeatedly in studies of international relations: (1) polarity; and (2) concentration” (106).
“In this paper, I argue that, despite the fact that the use of polarity has enabled political scientists to make significant advances, it is also fraught with a number of limitations…These limitations can be redressed, in part, by focusing on concentration as well as on the number of poles in the global system. Concentration is entirely consistent with the microeconomic underpinnings of modern realist explanations of international relations. Unlike polarity, it also incorporates both the power inequalities among the major powers and the number of…major powers” (106).
Polarity is a problematic way to measure balance of power phenomena for a number of reasons. For example, even though Waltz said that anyone with “common sense” would be able to assert how many poles there were in the international system, it actually remains quite a contentious issue. Mansfield goes on to explain that IR should take an example from business literature, which measures the relative power of different firms using a more complex method.
Concentration is, “…a function of: (1) the number of major powers in the global system; and (2) the relative inequality of capabilities among the major powers” (111).
Mansfield then goes on to show how the concept of concentration can be helpfully applied to a debate about hegemonic stability theory. “By focusing on concentration, it is possible to assess empirically the influence of some aspect of the interaction between the number of major powers and the relative inequality of power among them on international economic outcomes” (121).
This article argues that a more helpful metric for measuring power in the international system is not polarity, but concentration. “The argument of this paper is that, for the purposes of explaining patterns of balancing behavior, the onset of war, and many aspects of the international political economy, scholars are likely to find it useful to analyze both features of the distribution of power that have been used repeatedly in studies of international relations: (1) polarity; and (2) concentration” (106).
“In this paper, I argue that, despite the fact that the use of polarity has enabled political scientists to make significant advances, it is also fraught with a number of limitations…These limitations can be redressed, in part, by focusing on concentration as well as on the number of poles in the global system. Concentration is entirely consistent with the microeconomic underpinnings of modern realist explanations of international relations. Unlike polarity, it also incorporates both the power inequalities among the major powers and the number of…major powers” (106).
Polarity is a problematic way to measure balance of power phenomena for a number of reasons. For example, even though Waltz said that anyone with “common sense” would be able to assert how many poles there were in the international system, it actually remains quite a contentious issue. Mansfield goes on to explain that IR should take an example from business literature, which measures the relative power of different firms using a more complex method.
Concentration is, “…a function of: (1) the number of major powers in the global system; and (2) the relative inequality of capabilities among the major powers” (111).
Mansfield then goes on to show how the concept of concentration can be helpfully applied to a debate about hegemonic stability theory. “By focusing on concentration, it is possible to assess empirically the influence of some aspect of the interaction between the number of major powers and the relative inequality of power among them on international economic outcomes” (121).
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