Impact of the Decline of US Hegemony on World Economy Governance

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8th Feb 2020 Economics Reference this

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Subject: What will be the consequences of the decline of US hegemony for the governance of the world economy?

In the discipline of international relations, the concept of “hegemony” is used to define a powerful state that has the ability to lead the international order with political-diplomatic, military, economic and cultural instruments. In history, some states and empires have obtained this status. The Ottoman Empire between the 15th and 17th centuries and the British Empire in the 19th century and the United States since the end of the second world war are the closest examples to the model of the hegemonic state.

Many authors discussed on the topic of hegemony, any of them arrived at the conclusion that in an anarchic world, there is a need of a “hegemon” or a “leader” in order to provide a stable international system, especially in terms of economics. it was at the beginning of the seventies that the renewal of the theories took place. At the crossroad between political science and economics, the question of the emergence and the stability of an international economic order have been largely discussed. This will be the content of our first part, explaining how hegemonic order is associated with economic stability. Thereafter, we will talk about the critics and the alternatives to a hegemonic power with the case study of the decline of the US.

The theory of hegemonic stability

 

The purpose of this part will be to clarify the theoretical debate about hegemony, we will see that a lot of them share a number of common features.

The first author to have written about hegemony (that he preferred to call “leadership”) is the American economist Charles Kindleberger[1]. Indeed, in his book “An explanation of the 1929 depression”, he argues that the monetary and financial instability during the interwar was due to the lack of hegemonic power. he claims that one of the conditions to reach a stable international economy is the presence of a global hegemonic power. Kindleberger notes that the crisis of 1929 coincides with the absence of a dominating country (between Pax Britannica during the 19th century and Pax Americana after the second world war). For him these two actors have been unable to maintain an open market, ensure the long-term capital flows, implement a stable currency and acting as a “lender of last resort” to help smaller countries during the financial crisis. Indeed, according to him, without a hegemonic power the international order will be weakened as the economic world need a set of rules and norms to maintain the liberal economic order. (British hegemony was a success as a result of free trade and tariff reduction).  This emphasis the stabilizing role of the Hegemon.

After Kindleberger, neorealist developed the theory and asserted that the presence of a hegemonic state in the political system can create a more stable order – especially in economics – against the anarchic nature of international relations.

Even if Kindleberger is considered as the precursor of the theory, the most complete analysis was made by Robert Gilpin[2] (according to him Kindleberger was too “states centered[3]). In his book The Political Economy of International Relations, he emits a series of hypothesis allowing to understand the functioning of the hegemony in the international system. In this sense, the theory of hegemonic stability can be summarized by saying that a single actor more powerful and dominant than the others is collectively desirable for all the states of the international system. This actor, by promoting free trade and producing an international public good for this purpose, takes responsibility for the stabilization of the international system. These assumptions therefore make the state the central actor of the international system, considered to be rational and able to measure the scope of its actions. For a State to be a hegemonic it needs to provide a safe and liberal economic international order. First of all, he needs to provide basic public goods at the international economic level. Gilpin cites in particular free trade and a stable international monetary system as two particularly valuable public goods internationally. He considers that the leader, while being benevolent, is also the only one to have the power necessary to assume the costs of supplying such goods, to mobilize its partners and to impose on them the respect of the rules. More technically, the International Political Economy theorized this role of hegemon as the power that can create and maintain “international regimes”. However, the state faces the recurrent problem of public goods: free riders. “cheaters benefit from the collective goods but refuse to pay their “faire” share towards providing it” (Frey, 1984b, ch7)[4].  Indeed, states usually seeks to ensure their own self-interest, however in the long-term cooperation is way more beneficial for them. The interests of weaker or dependent States are thus better protected in a centralized international system than in a decentralized international system.

Keohane distinguishes several material sources of power that allow a state to be hegemonic. The first concerns the control and production of basic materials, including energy production. He also devotes a large part of his work. Then, the hegemon must have control over the sources of financing, thus on the movements of global capital. Thirdly, it must be large enough to be a large import market and thus to control the global supply and demand of goods. Finally, it must have competitive advantages in the markets of products with high added value.

Theory of international regimes

The Hegemonic theory received many critics and some alternatives, one of the most significant and accurate is Keohane’s, with his “regime theory”, he defines a regime as “those arrangements for issue areas that embody implicit rules and norms insofar as they actually guide behavior of important actors in a particular issue area (Keohane 1980: 133). This theory is very important as it is based on state cooperation which is an essential characteristic in order for the global governance to be stable. This cooperation is not only the result of the leadership of a hegemon, as the neorealist claim, but of the convergence of state interests that encourages them to create international regimes. According to Stephen KRASNER[5], an international regime is “a set of implicit or explicit principles, norms, rules, and decision-making procedures” that states adopt on a voluntary basis to manage their relationships and resolve their conflicts in a particular area of ​​activity. Robert KEOHANE defines the schemes as institutions of cooperation in specific areas, such as “trade, the environment, disarmament or human rights”. Regimes signify” agreements of principles, norms, conventions, decision-making procedures” governing the interactions of international actors in specific areas. They set the rules of the game and thus provide a framework for the foreign policy of states, making their behavior predictable on the international scene. Indeed, Keohane[6] gives a central function to institutions (organizations, international regimes) to ensure coordination. This conception is based on a theory of rational choice in international relations. Multilateralism allows states to share resources, reduce transaction costs and gather the expertise needed to deal with the complex new areas of international interdependence. If the collective preferences of the different countries diverge, the strengthening of institutions and the development of new frameworks of dialogue are there to overcome these differences. Delegation of power to independent authorities or multilateral institutions generates collective benefits. Agencies, such as the World Bank, the International Monetary Fund, or institutions, such as the WTO, are able to correct market failures, reduce asymmetric information, and guarantee the production of public goods (Keohane 1984, Krasner 1983).

Decline of the United States

One of the other major proposition concerning hegemony in the international system is of a dynamic nature: it is that of the existence of hegemonic cycles. Indeed, since the theory of hegemonic stability shows that the hegemon unintentionally causes its own decline on the one hand, and that the stability of the system depends on the existence of hegemony on the other hand, we can see that In history there is a succession of phases of stability interspersed with phases of instability. This succession then forms a positively binding cycle of hegemonic power and stability of the international system: this is the hypothesis of the hegemonic cycle. Many authors have sought to dismantle the existence of hegemonic cycles. To name only the most famous, we can give the example of the work of Paul Kennedy, or that of Mancour Olson. They rely on statistical evidence that the relative weight of the United States in the global economy tends to decline over time. For example, the 1973 oil shock is often interpreted as calling into question the post-war oil order and as a sign of the obvious decline of the United States in this sector. They also rely on the fact that more and more international problems require answers at this level, and that therefore cooperation becomes more and more important in the stabilization of the system. This vision is confirmed for example in the monetary field with the introduction of the G7 in the seventies, and its management of monetary instability in the eighties. In fact, Keohane, like Gilpin, are preoccupied by the present decline of the American empire which raises the possibility of the dislocation of international relations and war. According to Keohane, this can be avoided because, given the long-term national interest of the states and the relative autonomy of international institutions, the interstate co-operation created under American auspices can continue.

By this prism, the American military and economic power appears, since the end of the Second World War, at the base of a model of global governance, for example through the control of a set of institutions (a, such as the United Nations (UN), the International Monetary Fund (IMF) or more recently the World Trade Organization (WTO), a semblance of universality and certain standards (certain norms) worldwide, by the so-called “Washington consensus”. However, after the cold war the American Power started to decline, indeed two key events have questioned the US hegemony: the 9/11 terrorist attack and the 2008 crisis. 

Therefore, if we listen to the theory of Gilpin, the international order is about to collapse due to the lack of hegemon. However, just like the regime theory,

Adam Posen, in his text The post American Hegemony, Globalization in the Trump era, meets Keohane saying that institutions that he called “club” will lead the global governance when the United States won’t be able to. According to Krasner, there is some relative autonomy between the evolution of the distribution of power within the system and the international institutions or regimes responsible for maintaining hegemonic stability and order. Indeed, he thinks that “the change in the international configuration is developing underground pressure but [that] the institutions are maintaining their inertia”[7]. In other words, there would be two stages in the hypothesis of the hegemonic cycle: that of the change and distribution of power within the system, and that of the international

Adam Posen, in his text The post American Hegemony, Globalization in the Trump era, gives an insight of the world with the president Donald Trump that is very attached to his slogan “America First”.” The Trump administration has begun attacking international institutions from NATO to the UN. By blocking the appointment of new trade-dispute judges to sit on the WTO’s seven-member appellate body, the administration is preventing the WTO from functioning normally”. Some authors are optimistic in the future, however Posen wrote: “A world in which the United States ceases to lead—or, worse still, attacks—the system it built will be poorer, nastier, less fair, and more dangerous for everyone.”

At the end of this study of hegemony in the international political economy, several elements emerge from the analyzes. At the end of this study of hegemony in the international political economy, several elements emerge from the analyzes. The first one is the acknowledgement that a hegemonic power is (if not necessary) recommended in order to live in a stable economic world. However, institutions that have been created by the United States have a big influence on the world economy and global governance. Therefore, if the hegemonic power that is the United States disappeared the international organizations, with the help of the new emerging countries such as China, take over the duty of “leader”.

References

  • KINDLEBERGER C.P.[1973], The World in Depression, 1929-1939, Londres, Allen Lane : rééd, Londres, Penguin, 1987.
  • AZUELOS M.[1999], Pax Americana: de l’hégémonie au leadership économique, Paris, Cervepes, Presse de la Sorbonne Nouvelle.
  • COX R.W.[1995], “ Critical political economy ”, in HETTNE B.(éd), International Political Economy- Understanding Global Disorder, Firmwood Publishing, Sapes, University Press, Zed Books.
  • GILPIN R.[1975], U.S. Power and the Multinational Corporation : the Political Economy of Foreign Direct Investment, New York, Basic Books.
  • GILPIN R.[1987], The Political Economy of International Relations, Princeton, Princeton University Press.
  • GILPIN R.[2001], Global political economy : understanding the international order, Princeton, Princeton University Press.
  • KEOHANE R.O.[1980], “ The Theory of Hegemonic Stability and Changes in International Economic Regimes, 1967-1977”, in HOLSTI O.R., SIVERSON R., GEORGE A.(éd), Changes in International System, Boulder, Boulder Westviewpress.
  • KEOHANE R.O.[1984], After Hegemony : Cooperation and Discord in the World Political Economy, Princeton, Princeton University Press.
  • KRASNER S.[1983], International Regimes, Ithaca, Cornell University Press.

[1] Kindleberger (1988)

[2] Gilpin (1981) et Gilpin (1987)

[3] Gilpin (1981) et Gilpin (1987)

[4] Frey (1984)

[5] KRASNER International Regimes

[6] KeohaneThe Theory of Hegemonic Stability and Changes in International Economic Regimes, 1967-1977”,

[7] Kébabdjian (1999, page 189).

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