Hegemonic Stability Theory: The Rise and Fall of the US-Leadership in World Economic Relations

Content

1. Introduction

2. Hegemonic Stability Theory
2.1 Hegemony
2.1.1 The Hegemon and its System
2.2 Problems of the System – The Hegemon´s Decline

3. The US-Hegemony
3.1 The Postwar Economic World
3.2 Planning the New World Order under US-Leadership
3.3 The Establishment of the American Hegemony
3.3.1 Bretton Woods Conference (1944-1976)
3.3.2 The IMF and the World Bank
3.3.3 The GATT

4. The Decline of the US-Hegemon

6. Conclusion – Hegemony Today and Problems of the Theory

7. Literature

1. Introduction

In the second half of the 20. century the term of “Hegemonic Stability Theory “ was introduced by political scientists such as Stephen Krasner, Robert Gilpin and Robert Keohane to explain the mechanisms of the new economic world order that had been established after the Second World War.^[1] The main assumption of the theory that a stable liberal economic world order needs a hegemon was explained with the examples of the British hegemony in the 18. and 19. century and with the example of American hegemony in the postwar years of the second half of the 20. century.

This term paper intends to answer the following questions: What is Hegemonic Stability Theory about? How is the shape of the hegemonic system? Why will it decline? The theoretical assumptions will be extended by a closer look at the US-hegemony. How was it possible that the US could establish their leadership in the international economic system? What did they do to create a stable global economic order? Of course, the last questions have to answer why the US weakened and why their hegemony eventually declined? How is the situation today? Is there still a hegemon?

To answer these questions, the first part of the paper will summarize the main assumptions of the theory. Then, the international economic situation after the Second World War which enabled the US to become the world´s hegemon will be shortly presented. The following chapters will deal with the establishment of the US-hegemony by creating international regimes such as IMF, IBRD and GATT. Finally, the end of the paper will explain how the American hegemony declined and which role it plays in the present international economy.

2. Hegemonic Stability Theory

Initiated by Charles P. Kindleberger the theory of hegemonic stability generally argues that „states can only cooperate economically with one another when a hegemonic power holds the ring, economically or militarily“.^[2] The theory was developed in the 1970s to explain the Pax Britannica and the Pax Americana^[3]. In his book of 1973 The World in Depression, Kindleberger as an economic historian explained the outcome of the great depression at the beginning of the 20th century with the weakness of Great Britain to stabilize the international system and the unwillingness of the Unites States to do so, although it was strong enough. Eventually, Kindleberger comes to the conclusion that “for the world economy to be stabilized, there has to be a stabilizer, one stabilizer.”^[4] This function has to be fulfilled by the hegemon, who is the dominant power in the system. Furthermore, Kindleberger states that a liberal international economy requires a hegemon committed to liberal economic principles, that are the principles of free markets, openness and nondiscrimination. Generally, the prerequisites for the emergence and expansion of the liberal market system within the international economy are hegemony, the liberal ideology and common interests.^[5]

Some more general statements on the central propositions of the HST were made by Robert Keohane who argues that order in world politics is typically created by a single dominant power and that this order is constituted by the formation of regimes and the provision of public goods. Another assumption is that the maintenance of this order requires a continued hegemony which implies cooperation between the participating states within the system.^[6]

Since these are only the main assumptions of the theory in general, it is necessary to have a closer look at hegemony and the hegemon in the following parts of the paper.

2.1. Hegemony and the Hegemon´s System

What is understood by the term “hegemony”? Keohane and Nye define hegemony as a situation in which “one state is powerful enough to maintain the essential rules governing interstate relations, and willing to do so.”^[7] The power of this state is due to its preponderance of material resources:

To be considered hegemonic in the world political economy [...] a country must have access to crucial raw materials, control major sources of capital, maintain a large market for imports, and hold comparative advantages in goods with high value added, yielding relatively high wages and profits. It must also be stronger, on these dimensions taken as a whole, than any other country.^[8]

Furthermore, hegemony is considered to be a necessary but not a sufficient condition for the establishment of a liberal international economy. Within such an order the existence of the hegemon makes cooperation more feasible.^[9] Finally, the role of hegemony in the global process of economic growth helps to hold the system together and to stabilize it.^[10] As we will see later this stabilizing role is limited since the hegemonic system is unstable and eventually will decline for specific reasons.

2.1.1 The Hegemon and its System

To be defined as hegemon the actor in the international economic world has to be the dominant state in the system, it is the leader of an alliance. The hegemon has the ability to assist stability and leadership not only based on its economic but also on its military dominance.^[11] It also has the preponderance of material resources, has competitive advantages, technological superiority and furthermore the political control over valuable resources.^[12] The highest priority for the hegemonic state is the maximization of its economic gain.^[13] Therefore, the hegemon has created a liberal international economy to promote its interests that are particularly political as well as security interests. Since there are also positive outcomes of the system for the other participating states and since the hegemon has such a high prestige and status in the international political system its role is accepted and legitimized.^[14]

The tasks of the hegemon are quite clear: It needs the ability as well as the will to establish and maintain the norms and rules of a liberal economic order. That implies that the hegemon itself has to be committed to liberal values.^[15] As Gilpin argues: “There can be no liberal international economy unless there is a leader that uses its resources and influence to establish and manage an international economy based on free trade, monetary stability, and freedom of capital movement.”^[16] The hegemon uses its influence to create regimes, which rest on a political base established through leadership and cooperation.^[17] To reach this intended international order it can encourage but not compel other powerful states to follow the rules of the liberal system.

The role of a hegemon also includes that it facilitates international cooperation and that it prevents defection from the rules of the regime by means like economic sanctions, side payments and others. Besides creating regimes, another task of the hegemon is the provision of public or collective goods like the partly above mentioned open market economy, stable international currency and international security. These goods can be enjoyed by individual countries independent from their contribution to the maintenance of the goods. Here the problem of “free riders” and undersupplied public goods comes up which may have an effect to the final unstability of the system to be explained in the following chapter.

To keep the system as stable as possible the hegemon has to prevent cheating, exploiting and free riding of other states. It is also necessary that the dominant power enforces the rules of the liberal system and encourages other states to share the costs of maintaining the system and for example to remove their trade barriers to enlarge and stabilize the economic world order. The main sources of the hegemon´s influence are to be found in the capital control it has (can borrow cheaply, provide or deny credits) and in his relatively large market (can be opened to friends or access can be denied to others). The strength of the hegemon´s economy lies in its flexibility and mobility.^[18] There is also a need in the military power of the hegemon to be able to protect the international political economy from which many states may profit.^[19]

2.2. Problems of the System – The Hegemon´s Decline

As stated before, the hegemonic system is characterized by instability. Because of internal and external reasons the hegemonic power finally loses its will and ability to manage the system.^[20] Generally, the hegemon has an interest in keeping the status quo. That means it has to put more efforts on the system to stabilize it than other members have to. The result is the extension of costs that have to be paid to maintain the security in the system, for example military spending, stationing troops abroad, aid to allies and more.^[21] In economic terms, the hegemon

grows weary and frustrated with free riders [who can profit from the positive outcomes of the system held by the hegemon without paying for it, the hegemon tends to pay more than its share of the costs of maintaining the public good over the long run] and the fact that its economic partners are gaining more from liberalized trade than it is. More efficient, dynamic, and competitive economies rise that undercut the hegemon´s international position and the economic surplus that had financed the costs of global hegemony.^[22]

This is also due to the tendency of the hegemon to overemphasize consumption at the expense of investment which then results in declining growth rates.^[23] Therefore, the ability of the hegemon to manage and stabilize the system decreases. That leads to the decline of its international competitiveness which can produce a financial crisis, and in worst case may lead to the collapse of the whole system. Another effect of the hegemon´s decline can be that power shifts to other states.^[24]

As a conclusion to this part, one may state that the central argument of the HST is that “a hegemon creates an open world and that its decline leads to closure”^[25] and finally to global instability.

[...]

^[1] Reinhard Rode. Weltregieren durch Internationale Wirtschaftsorganisationen. Halle, 2001: 24.

^[2] Richard Rosecrance. The Rise of the Trading State: Commerce and Conquest in the Modern World. New York, 1986: 55.

^[3] David Lake. “British and American Hegemony compared: Lessons for the Current Era of Decline.” In: The International System and the International Political Economy: Volume 1: Hegemony and Cooperation in the International Economy. Joseph M. Grieco (ed.). Aldershot, 1993: 130.

^[4] Charles P. Kindleberger. The World in Depression: 1929-1939. Berkeley, 1973: 305.

^[5] Robert Gilpin. The Political Economy of International Relations. Princeton, 1987: 72-73.

^[6] Robert Keohane. After Hegemony: Cooperation and Discord in the World Political Economy. Princeton: 1984: 31-39.

^[7] qtd. in: Ibid.: 34-35.

^[8] Ibid.: 33-34.

^[9] Robert Gilpin. Global and Political Economy: Unterstanding the International Economic Order. Princeton, 2001: 94.

^[10] Gilpin. 1987: 74-77.

^[11] Franz Kohout. “Hegemonic Stability Theory”. In: International Political Science Review, Volume 24, Number 1, January 2003: 55-56.

^[12] Keohane: 32-33.

^[13] Gilpin. 1987: 89.

^[14] Gilpin. 1987: 73.

^[15] Ibid.: 72.

^[16] Gilpin. 2001: 99-100.

^[17] Ibid.: 97-98.

^[18] Gilpin. 1987: 77.

^[19] Keohane: 39-41.

^[20] Gilpin. 1987: 78-79.

^[21] Kohout: 55-56.

^[22] Gilpin. 1987: 78.

^[23] Kohout: 55-56.

^[24] Ibid.

^[25] Arthur A. Stein. “The Hegemon´s Dilemma: Great Britain, the United States, and the International Economic Order”. In: The International System and the International Political Economy, Volume 1: Hegemony and Cooperation in the International Economy. Aldershot, 1993: 149.