Hegemonic Stability Theory: A Very Brief Sketch (Essential Reading)

Basic Theory: The stability of the International System requires a single dominant state to articulate and enforce the rules of interaction among the most important members of the system.

To be a Hegemon, a state must have three attributes:

  1. The Capability to enforce the rules of the system;
  2. The Will to do so;
  3. A Commitment to a system which is perceived as mutually beneficial to the major states.

Capability rests upon three attributes:

  1. A large, growing economy;
  2. Dominance in a leading technological or economic sector;
  3. Political power backed up by projective military power.

Hegemons: The Historical Record

  • Portugal 1494 to 1580 (end of Italian Wars to Spanish invasion of Portugal) Based on Portugal’s dominance in navigation Hegemonic pretender: Spain
  • Holland 1580 to 1688 (1579 Treaty of Utrecht marks the foundation of the Dutch Republic to William of Orange’s arrival in England) Based on Dutch control of credit and money Hegemonic pretender: England
  • Britain 1688 to 1792 (Glorious Revolution to Napoleonic Wars) Based on British textiles and command of the High Seas Hegemonic pretender: France
  • Britain 1815 to 1914 (Congress of Vienna to World War I) Based on British industrial supremacy and railroads Hegemonic pretender: Germany
  • United States 1945 to 1971 Based on Petroleum and the Internal Combustion Engine Hegemonic pretender: the USSR

What does a Hegemon Do?

The system is a collective good which means that it is plagued by “free riders”. Through various means of coercion and consent the hegemon must ensure that other states support the system. In the post-war period the US promoted its own version of limited democracy, of human rights, liberal capitalism and global free trade. The basic contention is that other countries would enjoy the benefits of institutions like free trade, but will avoid paying the costs of producing them. Mainstream contentions insist that the US should remain committed to free trade even if its major trading partners erected barriers to trade. If and when the US erected barriers to trade, the contemporary system will collapse. Over time, there is an uneven growth of power within the system because new technologies and methods are developed. Under such conditions, the hegemonic system becomes unstable and the position of the dominant state is undermined. A next hegemon tends to emerged and takes control.

Further Reading

G. John Ikenberry, “Getting Hegemony Right,” The National Interest, No. 63 (Spring 2001)

Helen Milner, “International Political Economy: Beyond Hegemonic Stability,” Foreign Policy, No. 110, Spring 1998

Michael H. Hunt, “American Decline and the Great Debate: A Historical Perspective,” SAIS Review, Vol. 10, no. 2 (Summer-Fall 1990), pp. 27-40

Hegemony, international debt and international economic instability” in Chronis Polychroniu, (ed) Current Perspectives and Issues in International Political Economy, New York: Praeger, 1992.

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A Brief History of Paper Money (US-Centric View)

The Following is a brief chronology of the history of paper money, produced by the Federal Reserve Bank. It is, therefore, quite an ethnocentric view. To understand the origins and evolution more fully, it would be useful to bear in mind that:

  • Money does not have a single origin, but developed independently in many different parts of the world – at different times.
  • Many factors contributed to the development of money, and if evidence of what anthropologists have learned about primitive money is anything to go by, economic factors were not the most important.
  • Money performs a variety of functions. The functions performed by the earliest types of money were probably fairly restricted initially and would NOT necessarily have been the same in all societies.
  • Money is fungible. there is a tendency for older forms to take on new roles and for new forms to be developed which take on old roles; for instance, on English banknotes (such as the 5 pound note), there is the inscription, “I promise to pay the bearer on demand the sum of five pounds,” and below that there appears the signature of the chief cashier of the Bank of England. This is a reminder that originally banknotes were regarded in Britain, and in many other countries, as a substitute for money and only later did such notes become accepted as the real thing.

For a more complete historical review of money, see, Davies, Glyn. A history of money from ancient times to the present day, 3rd ed. Cardiff: University of Wales Press, 2002. 720 pages. Paperback: ISBN 0 7083 1717 0. Hardback: ISBN 0 7083 1773 1.

This topic will, in due course, be expanded elsewhere on these pages.

The following is, then, an ethnocentric chronology of money presented by the Federal Reserve Bank of San Francisco.

1690 – The Massachusetts Bay Colony issued the first paper money in the colonies which would later form the United States.

1775 – American colonists issued paper currency for the Continental Congress to finance the Revolutionary War. The notes were backed by the “anticipation” of tax revenues. Without solid backing and easily counterfeited, the notes quickly became devalued, giving rise to the phrase “not worth a continental.”

1781 – To support the Revolutionary War, the Continental Congress chartered the Bank of North America in Philadelphia as the nation’s first “real” bank.

1791 – After adoption of the Constitution in 1789, Congress chartered the first Bank of the United States until 1811 and authorized it to issue paper bank notes to eliminate confusion and simplify trade. The bank served as the US  Treasury’s fiscal agent, thus performing the first central bank functions.

1861 – On the brink of bankruptcy and pressed to finance the Civil War, Congress authorized the United States Treasury to issue paper money for the first time in the form of non-interest bearing Treasury Notes call Demand Notes.

1865 – Gold Certificates were issued by the Department of the Treasury against gold coin and bullion deposits and were circulated until 1933.

1877 – The Department of the Treasury’s Bureau of Engraving and Printing started printing all US  currency.

1913 – After the financial panics of 1893 and 1907, the Federal Reserve Act of 1913 was passed. It created the Federal Reserve System as the nation’s central bank to regulate the flow of money and credit for economic stability and growth. The system was authorized to issue Federal Reserve Notes, now the only US  currency produced.

1929 – Currency was reduced in size by twenty-five percent and standardized with uniform portraits on the faces and emblems and monuments on the backs.

1990 – A security thread and microprinting were introduced in $50 and $100 notes to deter counterfeiting by technologically advanced copiers and printers.

1996 – Additional security features are added to a newly redesigned $100 Federal Reserve note. The note incorporates both familiar and new features, while remaining recognizably American. Redesigned lower denominations are being introduced at the rate of about one denomination per year.

1997 – The new $50 bill is introduced. The second note to be redesigned to include new security features, the reverse side also includes an enlarged number 50 in the lower right-hand corner to aid the low-vision community.

Printing Currency

Since October 1, 1877, all US  currency has been printed by the Bureau of Engraving and Printing, which started out as a six person operation using steam powered presses in the basement of the Department of Treasury. Now, 2,300 Bureau employees occupy twenty-five acres of floor space in two Washington, D.C. buildings. The Treasury also operates a satellite printing plant in Ft. Worth, Texas. Currency and stamps are designed, engraved, and printed twenty-four hours a day on thirty high speed presses. In 1990, at a cost of 2.6 cents each, over seven billion notes worth about $82 billion were produced for circulation by the Federal Reserve System. Ninety-five percent will replace unfit notes and five percent will support economic growth. At any one time, $200 million in notes may be in production. Notes produced in 2002 were the $1 note, 41% of production time; the $5 note, 19%; $10 notes, 16%; $20 note, 15%; and $100 note, 9%. No $2 or $50 notes were printed in 2002.

Counterfeit Currency

By the end of the United States Civil War, between one-third and one-half of all US  paper currency in circulation was counterfeit. On July 5, 1865, the Secret Service was created under the US  Treasury Department. In less than a decade, counterfeiting was sharply reduced. In the past ten years the breakdown of denominations counterfeited has changed dramatically. The total of known $50 and $100 notes counterfeited has increased by sixty percent. The total number of fifty and one hundred dollar notes passed and seized in 1980 was 777,957. The total number of fifty and one hundred dollar notes passed and seized in 1990 was 1,240,840. In 1990, thirty-six percent of the dollar value of known counterfeit currency passed in the US was produced overseas, particularly in Colombia, Italy, Hong Kong, the Philippines and Bangkok. One hundred and thirty-nine domestic counterfeit operations and eighteen foreign counterfeit operations were suppressed in 1990.

Source: Federal Reserve Bank of San Francisco http://www.frbsf.org/federalreserve/money/funfacts.html Accessed on 4 October 2010

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Shift of Power in Global Political Economy (Essential Reading)

In the grip of a great convergence
By Martin Wolf
Financial Times
January 4 2011

Convergent incomes and divergent growth – that is the economic story of our times. We are witnessing the reversal of the 19th and early 20th century era of divergent incomes. In that epoch, the peoples of western Europe and their most successful former colonies achieved a huge economic advantage over the rest of humanity. Now it is being reversed more quickly than it emerged. This is inevitable and desirable. But it also creates huge global challenges.

In an influential book, Kenneth Pomeranz of the University of California, Irvine, wrote of the “great divergence” between China and the west. He located that divergence in the late 18th and 19th centuries. This is controversial: the late Angus Maddison, doyen of statistical researchers, argued that by 1820 UK output per head was already three times and US output per head twice Chinese levels. Yet of the subsequent far greater divergence there is no doubt whatsoever. By the middle of the 20th century, real incomes per head (measured at purchasing power parity) in China and India had fallen to 5 and 7 per cent of US levels, respectively. Moreover, little had changed by 1980.

What had once been the centres of global technology had fallen vastly behind. This divergence is now reversing. That is far and away the biggest single fact about our world.

On Maddison’s data, between 1980 and 2008 the ratio of Chinese output per head to that of the US rose from 6 to 22 per cent, while India’s rose from 5 to 10 per cent. Data from the Conference Board’s “total economy database”, computed on a slightly different basis, indicate that the ratio rose from 3 to 19 per cent in China and from 3 to 7 per cent in India between the late 1970s and 2009. The comparisons are uncertain, but the direction of relative change is not.

Rapid convergence on the productivity of advanced western economies is not unprecedented in the era following the second world war. Japan was the forerunner, followed by South Korea and a few small east Asian dragon economies – Hong Kong, Singapore and Taiwan. Japan had already begun to industrialise in the 19th century, with remarkable success. After its defeat in the second world war, it restarted at about a fifth of US output per head, roughly where China is today, to reach 70 per cent in the early 1970s. It attained a peak of close to 90 per cent of US levels in 1990, when its bubble economy burst, before declining again. South Korea started at 10 per cent of US levels in the mid-1960s to reach close to 50 per cent in 1997, just before the Asian crisis, and 64 per cent in 2009.

What is unprecedented this time is not convergence, but the scale. Suppose China were to follow Japan’s path during the 1950s and 1960s. Then it would still have 20 years of very fast growth in front of it, reaching some 70 per cent of US output per head by 2030. At that point, its economy would be a little less than three times as large as that of the US, at PPP, and larger than that of the US and western Europe combined. India is further behind. At recent rates of growth, India’s economy would be about 80 per cent of that of the US by 2030, though its gross domestic product per head would still be less than a fifth of US levels.

China is today where Japan was in 1950, relative to US levels at that time. But its output per head is far higher in absolute terms, since US levels have themselves risen threefold. Today, China’s real GDP per head is roughly where Japan’s was in the mid-1960s and South Korea’s in the mid-1980s. India’s are where Japan was in the early 1950s and South Korea in the early 1970s.

In short, today’s divergent rates of growth between successful emerging economies and the high-income economies reflects the speed of the convergence of incomes between them. This divergence in growth is staggering. In an important speech in November, Ben Bernanke, chairman of the US Federal Reserve, noted that in the second quarter of 2010, the aggregate real output of emerging economies was 41 per cent higher than at the start of 2005. It was 70 per cent higher in China and about 55 per cent higher in India. But, in the advanced economies, real output was just 5 per cent higher. For emerging countries, the “great recession” was a blip. For high-income countries, it was calamitous.

The great convergence is a world-transforming event. Today, the west – defined to include western Europe and its “colonial offshoots” (the US, Canada, Australia and New Zealand) – contains 11 per cent of the world’s population. But China and India contain 37 per cent. The present position of the former group of countries will not be sustained. It is a product of the great divergence. It will end with the great convergence.

This assumes that the convergence itself will continue, if not necessarily at recent speeds. The best response to those who doubt this is: why not? Powerful market and technological forces are spreading the stock of knowledge across the globe. No one doubts that Chinese and Indian people are capable of applying it. They are quite as entrepreneurial and driven as westerners. Being poorer, they are surely far more so.

Until recently, political, social and policy obstacles were decisive. This has not been true for several decades. Why should these re-emerge? True, many reforms will be required if growth is to proceed, but growth itself is likely to transform societies and politics in needed directions. True, neither China nor India may surpass US output per head: Japan failed to do so. But they are far away today. Why should they be unable to reach, say, half of US productivity? That is Portugal’s level. Can China match Portugal? Surely.

Of course, catastrophes may intervene. But it is striking that even world wars and depressions merely interrupted the rise of earlier industrialisers. If we leave aside nuclear war, nothing seems likely to halt the ascent of the big emerging countries, though it may well be delayed. China and India are big enough to drive growth from their domestic markets if protectionism takes hold. Indeed, they are big enough to drive growth even in other emerging countries as well.

In the past few centuries, what was once the European and then American periphery became the core of the world economy. Now, the economies that became the periphery are re-emerging as the core. This is transforming the entire world. What this means for us all will be the subject of next week’s column.

This article was reproduce here for educational purposes. Original Link: http://www.ft.com/cms/s/0/072c87e6-1841-11e0-88c9-00144feab49a.html?ftcamp=rss#axzz1ASEnH9A3 (Registration Required)

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“Economists have no ethics”

Sociologists [pdf], psychologists, or statisticians, all have well-defined ethical guidelines or codes of conduct. The American Economic Association has no such guidelines or code nor do most economics programs offer courses—at either the undergraduate or graduate level —on ethics. Could this be changing, asks Robert Ruccio?

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The First Great Depression of the 21st Century By Anwar Shaikh

Anwar Shaikh “The First Great Depression of the 21st Century”

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Susan Strange. An Obituary as Introduction

By Gautam Sen

Susan Strange may, rightfully, be credited with institutionalising the discipline of International Political Economy. The following obituary for her was written by one of my former teachers at the London School of Economics.

Published in The Independent (London) on Wednesday, 9 December 1998

Susan Strange was one of the world’s leading scholars in international relations and the major European figure in its sub- discipline of international political economy (IPE), the study of the activities of states and transnational agents in their efforts to influence markets and political life.

For a generation she wrote prodigiously and lectured to audiences in dozens of countries, in every continent. She left behind a remarkable legacy that few can match. She was highly regarded by colleagues and students in Europe, North America, Japan and elsewhere, many of them occupying prominent positions in national and international professional and public life. Her impact is hard to overestimate.

Strange’s most enduring achievement was to institutionalise teaching and research into IPE in Britain. Many British universities that now boast flourishing graduate programmes in IPE have her to thank for establishing the first IPE graduate programme at the London School of Economics in 1984, against some robust opposition, it might be added. Ironically, the ability of the programme to attract high-fee-paying and high-quality foreign students silenced intellectual scepticism. In 1978 she was appointed Montague Burton Professor of International Relations at LSE.

She was also involved in the creation of several other graduate programmes, including one in Warwick University, and a generation of her former students holds teaching positions in all of them. Strange was one of the select few who enjoyed instant name recognition and easily filled large auditoriums. At the beginning of term her books are to be seen piled high in bookshops.

Susan Strange was born in 1923 and graduated with a First in Economics from LSE during the Second World War. She began a career in journalism, first at The Economist and then for The Observer, as the youngest White House correspondent of her time.

On her return to London in 1949, she also began to teach at University College, while she continued as The Observer’s economics correspondent and an editorial writer. In 1965 she became a research fellow at the Royal Institute of International Affairs at Chatham House and subsequently directed its acclaimed transnational relations project. While at Chatham House she wrote Sterling and British Policy (1971), one of a number of significant projects during Andrew Shonfield’s directorship of the institute.

Her intellectual contribution has been twofold and will endure, because its concerns have been absorbed into the mainstream of international relations thinking. The methodological issue of the failure of economics and international politics to engage with each other, as a matter of course and systematically, was addressed by Susan Strange in a justly famous paper entitled “International Politics and International Economics: a case of mutual neglect”. If the issue now seems dated, it is precisely because a small band of scholars like her drew attention to its half-heartedness in the first place.

The other central aspect of her investigations was the impact of power politics on market outcomes and international organisations, apparently pursuing uncontroversial technical goals. In a celebrated piece, in 1982, she reflected unsparingly on the allegedly benign consequences of international regimes associated with them.

In her work on IPE, she was one of the few mainstream writers who remained robustly critical of what she considered selfishly irresponsible US policies, that she felt were inimical to the health of the world economy. She maintained that domestic politics and US constitutional arrangements were particularly to blame for this unhappy situation. She also dismissed as self-serving the widely propagated lament of its decline, suggesting, instead, that the US retained a huge advantage.

Strange was an early participant in the debates at Harvard, Princeton, Columbia and LSE that turned into the tidal wave of IPE literature. This output has now become varied, often displays richness and taps into an important seam of policy-making issues, central to choices being made. Her book States and Markets (1988) was swiftly written and had its defects, but students bought it eagerly because the book provided an easily comprehensible unifying theme for the totality of IPE.

In 1986 she had already written Casino Capitalism, a prescient comment on the potential significance of increased international financial activity. Typically, she moved, on her official retirement, to a new career at the European University Institute in Florence in 1989. From there, she collaborated with John Stopford of the London Business School to co-author Rival States, Rival Firms: competition for world market shares (1991). It won the George Terry award for its contribution to management studies.

Susan Strange embodied a certain kind of quintessential Englishness that was striking to an outsider like myself, the first PhD student she supervised. She was an iconoclast and radical, a tradition that recalls a powerful theme in English culture and history. She was no revolutionary, but she questioned prevailing nostrums with ill-concealed glee.

And even when she missed the target she did so imaginatively. This was her great asset, to be interesting even when she was wrong, a welcome contrast to the solemnities of carefully footnoted pedantry, that often arouses a sinking feeling of deja vu. She belonged to a pedigree that echoed the Manchester School liberals, believing in the pragmatic possibilities of human improvement, although she had fewer ideological illusions. That she was the daughter of a renowned First World War flying ace somehow does not surprise.

Her life must also be judged remarkable for the many dimensions and qualities it combined. It remains a mystery how she managed to expand unforgiving time to be a mother to six children, a wife, write quite so much, lecture as well as travel widely. She married a fellow journalist at The Observer, Clifford Selly, in 1955, when she was already a career woman with two children. It was his sound judgement on the possibilities and limits of the real world in which she trusted.

The result was the outwardly contradictory synthesis in her work of imaginative analysis with caution in prescription. She had no time for any of the fashionable 1960s New Left Jacobinism, de rigueur for protest, in the period, against the ills of the world economy. Yet she held strong views against injustice, refusing to visit apartheid South Africa.

She was impatient of feminists carping about the unfairness of life, famously chiding them in her presidential address to the American International Studies Association in 1995; she was only the second non- American to hold the post. But she was also an exemplar of feminist success in the life that she led. Of men, she once said that they either belonged to cultures in which men liked women and enjoyed their company or they belonged to cultures that did not. She implied the need for a more complex standard for judging the first type in which men also seemed to evince greater interest in the female sexual persona.

Susan Strange was a good- humoured and fun person, willing to listen and cross swords good- naturedly with colleagues and students over a beer, never resorting to intellectual terrorism by wielding her authority. If she thought she had encountered an interesting idea she would yield with enthusiasm. What she did not suffer was self-pity. Perhaps, she was also a little too demanding of effort from those around her to fulfil their potential. There was not a lot in her own life that would have given her pause over such average human infirmities in this regard.

A fortnight before her death she published Mad Money, a sequel to Casino Capitalism. True to form, she had never actually quit, retiring a second time, at 70, to a professorship at Warwick University when she left Florence. She clearly did not relish what she regarded as petty- fogging bureaucratic proprieties. But in a final act of help to IPE scholarship in Britain she secured, by her presence, a major grant from the Economic and Social Research Council, for Warwick University to study globalisation.

Susan Strange, scholar of international relations: born 9 June 1923; Lecturer in International Relations, University College London 1949-64; Research Fellow, Royal Institute of International Affairs 1965-76; German Marshall Fund Fellow, London School of Economics 1976-78, Montague Burton Professor of International Relations 1978-88; Professor of International Relations, European University Institute in Florence 1989-93; Professor of International Relations, Warwick University 1993-98; married 1942 Denis Merritt (died 1993; one son, one daughter; marriage dissolved 1955), 1955 Clifford Selly (two sons, one daughter, and one son

Link to Original Article: http://www.independent.co.uk/arts-entertainment/obituary-professor-susan-strange-1190179.html

See, also, the obituary written by Richard Higgott and Roger Tooze.

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What is International Political Economy? A Basic Account

International Political Economy (IPE) is the rapidly developing social science field of study that attempts to understand international and global problems using an eclectic interdisciplinary array of analytical tools and theoretical perspectives. IPE is a field that thrives on the process that Joseph Schumpeter called “creative destruction.” The growing prominence of IPE as a field of study is in part a result of the continuing breakdown of disciplinary boundaries between economics and politics in particular and among the social sciences generally. Increasingly, the most pressing and interesting problems are those that can best be understood from a multidisciplinary, interdisciplinary, or transdisciplinary point of view. If there is an “IPE Project” its objective is to pull down the fences that restrict intellectual inquiry in the social sciences so that important questions and problems can be examined without reference to disciplinary borders.

IPE is the study of a problématique, or set of related problems. The traditional IPE
problématique includes analysis of the political economy of international trade, international finance, North-South relations, multinational corporations, and hegemony. This problématique has been broadened in recent years as many scholars have sought to establish a New IPE that is less centered on International Politics and the problems of the nation-state and less focused on economic policy issues. These scholars seek to create a new discipline of IPE that would transcend the perceived limits International Politics and International Economics as fields of study and research (Read the full paper)

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The Asian Debt and Development Crisis of 1997: Causes and Consequences

Interpretations  of  the  Asian  crisis  have  coalesced  around  two  rival  stories:  the “death  throes  of  Asian  state  capitalism”  story  about  internal,  real  economy  causes;  and  the “panic  triggering  debt  deflation  in  a basically  sound  but  under-regulated  system” story  that  gives more  role  to  external  and  financial  system  causes.  The  paper  presents  the  stories  and  assesses the  evidence.  The  evidence – in particular,  the  chronology  of  the  crisis – supports the  second rather  better  than  the  first.

The  paper  discusses  the  interests  driving  capital  account  liberalization  without  a  framework  of regulation,  the  single  most  irresponsible  act  of  public  authorities  in  the  whole  crisis.  US  and  UK financial  firms,  allied  with  their  treasuries  and  with  the  IMF,  the  WTO,  and  the  OECD,  saw themselves  at  a  chronic  disadvantage  in  the  Asian  system  of  long-term  relationships  and  patient capital.  This  alliance,  supported  by  segments  of  Asian  political  and  financial  elites,  achieved dramatic  domestic  financial  sector  liberalization  and  capital  account  opening  in  Asia  over  the 199Os, setting  up  the  conditions  for  crisis. Paradoxically,  the  crisis  may  be  looked  back  upon  not  as  the  triumph  of  benign  globalization and  neoliberal  economic  doctrine  but  as  the  beginning  of  its  end.  Follow this link for the full paper.

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Christopher Coker on the ‘Transatlantic Relationship in the 21st Century’

In February 2010, Christopher Coker took part in a roundtable on the ‘New Terms of Engagement in the Transatlantic Relationship in the 21st Century’ at The Institute of International and European Affairs thinktank in Ireland. The following is a video of Coker’s contribution.

Christopher Coker at RUSI Conference on the United States as “an ordinary country”…

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