With American leadership facing increased competition from China and India, the question of how hegemons emergeand are able to create conditions for lasting stabilityis of utmost importance in international relations. The generally accepted wisdom is that liberal superpowers, with economies based on capitalist principles, are best able to develop systems conducive to the health of the global economy.
In Birth of Hegemony, Andrew C. Sobel draws attention to the critical role played by finance in the emergence of these liberal hegemons. He argues that a hegemon must have both the capacity and the willingness to bear a disproportionate share of the cost of providing key collective goods that are the basis of international cooperation and exchange. Through this, the hegemon helps maintain stability and limits the risk to productive international interactions. However, prudent planning can account for only part of a hegemon’s ability to provide public goods, while some of the necessary conditions must be developed simply through the processes of economic growth and political development. Sobel supports these claims by examining the economic trajectories that led to the successive leadership of the Netherlands, Britain, and the United States.
Stability in international affairs has long been a topic of great interest to our understanding of global politics, and Sobel’s nuanced and theoretically sophisticated account sets the stage for a consideration of recent developments affecting the United States.
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About the Author
Andrew C. Sobel is a political scientist in the International and Area Studies Program at Washington University in St. Louis. He is the author of several books, including Political Economy and Global Affairs; State Institutions, Private Incentives, Global Capital; and Domestic Choices, International Markets.
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Birth of HegemonyCrisis, Financial Revolution, and Emerging Global Networks
By ANDREW C. SOBEL
THE UNIVERSITY OF CHICAGO PRESSCopyright © 2012 The University of Chicago
All right reserved.
Chapter OneA Framework for the Development of Hegemonic Capacity
History is the long and tragic story of the fact that privileged groups seldom give up their privileges voluntarily.—Martin Luther King, Letter from Birmingham City Jail, April 16, 1963
For the past four hundred years, the rules of the global game have tended, with some interruptions, to reflect a growing preference for liberal exchange and increasing openness to the flow of goods, services, capital, and sometimes labor across national boundaries. This has unleashed the power of comparative advantage, spurred specialization across political economies, prompted economic expansion, led to improvements in overall social welfare for many communities, and advanced the globalization of economic and social relations. A major contributor to this dynamic has been the presence of a political economy, a liberal hegemon, with the capacity to promote and manage a system conducive to such relations. Examining the processes of such leadership and how it emerges to establish and maintain the rules of the game for international affairs has tremendous implications for our understanding of global political and economic relations. Such knowledge can inform policy debates, help policy makers avoid pitfalls that produce dislocations, and perhaps aid those same policy makers in adopting policies that engender cooperation in the global arena to improve the social welfare of their societies.
How does a liberal hegemon emerge? How does such a political economy exercise its influence and support rules that promote capitalist exchange and cooperative behavior across borders? A liberal hegemon fosters an environment in which cooperation and liberal economic exchange are incentive compatible for national policy makers and their selectorates. By incentive compatible I mean that such an environment and the choice to cooperate in liberal economic exchange are consistent with the preferences of the hegemon's policy makers and the preferences of policy makers and their societies in other political economies. To create such an environment, a liberal hegemon provides a handful of collective goods that influence the cost-benefit estimations of a nation's policy makers. These goods increase the gains of cooperating around liberal market exchange across borders, raise the costs of defection from such policies, reduce temptations for national policy makers to adopt policies that shift costs of adjustment to economic dislocations abroad, and help manage crises that could threaten stability and growth in the global economy.
In this book I use political and economic history to explore the foundations of such liberal hegemonic leadership in the global political economy. Questions of leadership and hierarchy have long captured the attention of social scientists interested in international affairs. The list of investigators who have poked, probed, and prodded the role of hierarchy in international affairs reads like a Who's Who of prominent social scientists. 2 Given the importance of hierarchy to international affairs I am sure that many of the best investigators in the future will spend some of their energy extending and challenging the state of knowledge about hierarchy, how it works, and why it is important. Here, I limit my focus to liberal economic leadership, because that is what has dominated for the past four centuries. The Dutch from 1500 to 1700, the British from 1700 to 1900, and the Americans in the twentieth and twenty-first centuries provide the grist for this study. Each acted as a commercial and financial hegemon during an era of expanding globalization, dominating international trade and financial affairs in the global arena and supporting the scaffolding for global capitalist exchange.
Understanding hegemony and hierarchy in international affairs is far more than academic musing. In the modern nation-state system, national boundaries define the dominant political geography. Yet, the geography of economic activity has increasingly crossed and challenged political geography to produce a global political economy dominated by liberal market exchange or global capitalism. States and markets are two fundamentally different strategies for distribution of gains and losses—one centralized, the other decentralized. The two geographies, political and economic, can create frictions and traps that often require inter national cooperation in order to achieve productive economic and political relations. Such cooperation is difficult to build and hard to sustain with a political geography dominated by relatively autonomous nation-states. National policy makers encounter substantial obstacles to cooperation—temptations to free-ride, uncertainty and distrust, short-term electoral pressures, incentives to engage in predatory or beggar-thy-neighbor activities, and problems of monitoring and accountability to mention just a few.
Liberal hegemonic leadership has been viewed as essential for cooperative international relations that enhance social welfare and limit economic, political, and social dislocations. A liberal hegemonic state establishes rules of the game for global political-economic affairs. Such rules guide choices and help overcome barriers to the cooperation essential for productive market exchange across borders. They act as constraints on choices in the hope of limiting damaging actions and increasing incentives for more socially productive choices. A liberal economic hegemon creates such rules by providing scaffolding that reduces uncertainty and risk in cross-border market exchange and interaction. This scaffolding includes collective goods that help lubricate and sustain international cooperation and socially productive economic interactions during good times and manage and limit dislocations during bad times, which can lead to instabilities that undermine cooperation in the global political economy. A hegemonic state is that political economy with the capacity and will to bear a disproportionate share of the responsibility for providing such key collective goods.
Hegemonic Leadership: Coercive vs. Benevolent, Positive vs. Normative, Stability vs. Instability
For some the term hegemony carries pejorative connotations, though I use it quite differently in this book. Some argue that a hegemonic state leads by coercion whereas others make a case for benevolent hegemony. I find this distinction more semantic and confusing than helpful. Whether a hegemonic state that dominates the rules of the international game of political economic exchange is coercive or benevolent likely depends upon where you sit in the system, your preference for some rules of the game and not others, and how you do or do not benefit from those rules. Rather than dwell on normative distinctions between coercive and benevolent hegemony, I focus primarily on the positivist and behavioral perspective of a hegemon: what a hegemon does and how. Nevertheless, one cannot ignore the tremendous normative implications of hegemonic leadership, be it stability, cooperation, productive mutual economic relationships, growth of interdependence, expansion of asymmetric mercantilist relations, excessive rent extraction, or manipulation. These drive much of the debate over hegemonic leadership—who has it, whether it is good or bad, and if it is good, whether such leadership is essential for the overall social welfare of the international system.
Independent of the benevolent-coercive debate, many political scientists equate a dominant state overseeing a clear and stable hierarchy among states with peace and economic expansion and, conversely, periods of uncertain hierarchy with periods of conflict and unrest. This argument about the importance of hegemonic leadership for cooperation, peace, and stability has become known as hegemonic stability theory (HST). Kindleberger, one of the strongest proponents of HST, viewed a successful leader as one that could unilaterally establish and support rules of the game that stabilize expectations, manage risk, and promote cooperation and mutually beneficial exchange across national borders in good and in bad times. Preferring the term responsibility to hegemony, he argued that during uncertain times, when the system hit significant shocks, "for the world economy to be stabilized, there has to be a stabilizer—one stabilizer." Kindleberger used the variation in hegemonic capacity from Pax Britannica during the 1800s, to the interwar years, to the Pax Americana of the post–World War II period, to test his conjectures about the role of hegemonic leadership and its contributions to productive globalization, economic growth, and relative peace.
During Pax Britannica the British used their wealth, markets, and capabilities to provide key collective goods, which endowed the United Kingdom with leverage to exercise global leadership, set the rules of the game, and promote a stable liberal international economic order. Kindleberger blames the collapse in hegemonic leadership following World War I for a breakdown in cooperation, reversals in globalization, and the traumatic interwar years. Under Pax Americana, the ability of the United States to establish rules of the game and provide collective goods (militarily and economically) to its bloc during the Cold War reduced uncertainty, encouraged exchange and cooperation, and advanced a liberal international economic order that enhanced stability and growth in the postwar era.
Using such evidence, Kindleberger and other proponents of HST noted that periods of sustained liberal hegemonic leadership—when a political economy exists with the capacity and will to provide important collective functions—are marked by increased international cooperation, beneficial cross-border exchange, economic expansion, accelerating globalization, and improved social welfare. Absent hegemonic leadership they questioned whether states would cooperate sufficiently to ensure stable rules of the game that promoted mutually beneficial exchange and cooperation in the global arena. Policy makers across states would face heightened instability in expectations, increased concerns that their counterparts in other states would defect and adopt beggar-thy-neighbor policies, and a calculation that by unilaterally adopting cooperative policies they could not change the dynamic leading to destructive economic outcomes and only increase the magnitude of the potential costs to their societies. National policy makers would encounter expanding pressures to defect for short-term gains or temptations to free-ride on the cooperative activities of other states. They would face increasing incentives, and decreasing disincentives, to adopt policies that might enable their societies to gain at the expense of others by shifting the costs of economic, political, and social hardships abroad. After all, political leaders will almost always prefer that someone else's constituency bear the costs of adjustment during economic downturns. Such policies can spiral into a vicious cycle of tit-for-tat retaliation across national borders. This could unravel cooperation and undermine rules of the game critical to socially productive economic exchange across borders, producing greater economic volatility, heightened international social and political unrest, and perhaps even war.
This describes a classic social trap where the rational calculations of decision makers aggregate to produce socially suboptimal outcomes. These suboptimal outcomes can be avoided if decision makers can be induced to make other choices. From the perspective of HST, only a hegemon can induce such cooperation by being able and willing to overcome the free-rider problem and willing to bear the costs unilaterally of providing key collective goods that promote cooperation and exchange across borders—collective goods that constrain the proclivities of policy makers toward destructive economic nationalism.
Questions of hegemonic capacity and will have been important throughout the history of globalization and capitalist expansion. From a policy perspective, understanding such processes is never more important than when the global political economy slows and faces heightened uncertainty about future prospects for economic growth and vitality, when national policy makers entertain notions of transferring the costs of economic adjustment to other nations' populations, and when those at or near the top of the global hierarchy begin to wonder about hegemonic decline or replacement. The early twenty-first century just might be such a time as a financial crisis rooted in the United States spread across national borders. We observe a growing global dissatisfaction with US foreign policies related to the war on terror. Concerns are rising about the growing fiscal exposure of the United States because of expanding trade and budget deficits and a declining dollar. Moreover, the rapid economic expansion of China and India are prompting questions about possible hegemonic replacement.
In the wake of financial market distress, severe recession, and the rise of unemployment, national policy makers face increasing temptations to protect their domestic constituencies at the expense of others. Such pressures appear in policy debates over trade and protectionism, currency valuation and financial cooperation, international burden sharing, and the ever-changing balance between states and markets. Succumbing to such pressures threatens to dismantle the cooperation that has driven global economic expansion and improvements since the end of World War II. Does the United States have the capacity and the will to continue its support for rules of the game that promote the cooperation underpinning globalization and liberal market exchange? Is there another political economy with the capacity and will to step forward and provide key collective goods if US leadership falters? Such questions about change in the international hierarchy are not questions about competition or conflict as posed by pundits and analysts fearful of such change but about the prospects for continued international cooperation.
Since the 1970s, fears of hegemonic erosion and its potential consequence for disruption emerged, disappeared, and reappeared. In the 1970s and 1980s the growth of interdependence and its concomitant trade-off for state policy autonomy, the emergence of persistent US trade deficits and expanding public deficits, US economic stagflation, weakness in the dollar, and the rise of Japanese economic prowess fueled a discussion over the possibility of US decline and the ability of the United States to act as the commercial hegemon in the global arena. Some looked to the future with trepidation over the prospects for continued economic cooperation absent hegemonic leadership.
Much of this discussion subsided by the early 1990s. From 1980 onward, the US economy recovered and grew at a rate that exceeded historical expectations, outpaced growth in other advanced industrialized nations, and spilled over to promote an economic boom worldwide. Political upheaval and economic liberalization within the Soviet-dominated Eastern bloc, the disintegration of the Soviet Union, and the bursting of the Tokyo real estate bubble that led to Japanese economic stagnation, left the United States unchallenged economically and as the sole political-military superpower. Global capitalism fostered by the United States prevailed as the only game in town. The tarnish on the US position as commercial hegemon disappeared, and US dominance over the rules of the game seemed stronger than ever.
Some attributed US hierarchical persistence to its soft power, defined as the implicit acceptance of institutions and ideas fostered by the United States, the central position of US markets and consumers in global exchange, the influence of US multinational corporations on global business, and the tremendous externalities generated by US monetary and fiscal policies. According to the logic of these arguments, US influence was less a consequence of rational and explicit manipulation to engender cooperation and promote liberal exchange and more a result of embedded processes, networks, and institutions of global exchange that structured the incentives of political-economic actors around the world—the rules of the game.
Excerpted from Birth of Hegemony by ANDREW C. SOBEL Copyright © 2012 by The University of Chicago. Excerpted by permission of THE UNIVERSITY OF CHICAGO PRESS. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Chapter 1 A Framework for the Development of Hegemonic Capacity Chapter 2 Key Collective Goods for Hegemonic Capacity and Their Microfoundations Chapter 3 The Dutch Revolt and Rise of Dutch Leadership in the 1500–1600s Chapter 4 Creating a Financial Foundation for British Leadership in the Global Arena Chapter 5 The Interwar Years, 1920–1930s: Was the United States Capable?
Chapter 6 US Leadership after World War II Chapter 7 The Future of US Leadership in the Twenty-First Century and Potential Successors
Epilogue Notes References Index
Andrew C. Sobel is a political scientist in the program in international and area studies at Washington University in St. Louis. He is the author of several books, including Political Economy and World Affairs; State Institutions, Private Incentives, Global Capital; and Domestic Choices, International Markets.