Is ‘us Hegemony’ Good for the International Economic System? Why or Why Not?

Is ‘US hegemony’ good for the international economic system? Why or Why not?

Introduction

Since the second World War, US has been a major powerhouse in both world politics and economics. They´ve had a” hegemonial” dominance over the other states since then, and we have often wondered if this dominance will continue or if it will crumble. Is this dominance any good for the international economic system? Is the position as hegemon starting to decline or will this be a position that United States of America will have for the foreseeable future?

This essay will examine the positive and the negative sides of American hegemony in the international economic system. I want to start this essay with some information about hegemony and the theory of hegemonic stability. I feel that this is important to know before I go to the second section, where I will be discussing the positive sides of this hegemonic power that US has for the moment and look at different approaches that this gives for the world economy. In the third section, I will look at the downside of US´s hegemonic power and look at different scenarios that focuses on a declining hegemonic power.

The word hegemony is defined differently by different authors and scholars. Keohane and Nye (1977, p.44) and many others, describes hegemony as `a situation where one state has significantly greater power resources and capabilities than other states in the international system and, by virtue of its overtaking, is able to dominate developments in the areas that it itself prioritizes highest`. Christopher Layne (International Security, 2006) describes hegemony as `raw, hard power`. The word itself derives from the Greek word ´hēgemonía´ and means ruling or leadership. Thucydides, a Greek historian, used this term to explain the situation of the Athenians approximately around 5th century BC. We will come back to ancient Greece and Thucydides later on.  

The theory of Hegemonic Stability

In Keohane´s, After Hegemony: Cooperation and discord in the world economy from 1984, the author explains the theory of Hegemonic Stability in world political economy. This theory is used to define a hegemon and their relations with the world economic and political stability in the global world. This theory is based on four important sets of resources. (Keohane 1984)

The first resource is raw material, which traditionally justifies expansion and imperialism. Examples for that can be the race for Africa in the late 1800´s or the British domination over several colonies, among these India. Keohane (p.32) even mentions the race for oil has affected several states and the evolution of international regimes.

The second resource is the control over sources of capital. When Amsterdam and Holland was the hegemon and the central institution for economic wealth from 1580-1688 (Rosecrance 1987, Modelski), they had a well-functioning capital markets, who could borrow very cheaply and had the opportunity to provide credit and even had the power to deny it. A modern example of this resource is the US policy of The Marshall plan after World War II. They offered an economic initiative to help and aid Europe after the war in the pretence of eradicating communism.

Control over the markets is the third resource in the THS. With this tool, a state has the possibility to cut off a particular state´s access to one´s own market. Recent examples of this is the Qatar-crisis, where the neighboring states have cut all diplomatic ties and the Qataris depends on buying their food from Turkey and Iran. North Korea is also a country, which has experienced the American and the UN´s control over the markets by being blocked for several years. Economically this is an act of hard power, which can create a starvation and deaths.

The fourth and final dimension is competitive advantages in production of high value goods. This means that if a product of a certain state is produced efficiently and if it’s even large competitive in other core states, that particular state will be the primary beneficiary of a free world marked (Keohane, p.33)

Kindleberger states in his book `The World in depression, 1929-1939` from 1973, that if the economy of the world is to be stabilized, there has to be a stabilizer, one stabilizer. Richard Rosecrance authored a journal article (´Long Cycle Theory and International Relations`) in 1987, where he discussed different cycle theory and compared it to hegemonic power. He compares among the theories of Kontratieff and Modelski. These models are competing theories for the Hegemonic Stability Theory of Keohane. Kontratieff did a study of products and prices, while Modelski did a study about hegemonic power from 1500 till now. While comparing these two cycle theories, Rosecrance comes to the conclusion that when there is a downswing in prices and products, there is world peace, while upswing causes wars. So how did the Americans become the hegemons?

Pax Americana

This term is used to describe the peace in the West and to emphasise the hegemonic power that is being enjoyed by the US. Many scholars disagree about when US became the hegemon of the world. Some say that they were the hegemonic power after World War I, while others anticipate that the power came after WWII. After WW1, the Americans pushed for the League of Nation, which is an intergovernmental institution, which paved the way for today´s UN.^[1] The American president at the time Woodrow Wilson wanted to take the leader role in this new-formed institution, but the Congress stopped his plans. This could have been the passage for American hegemonic power, but the US ran an isolation policy that lasted until the Second World War. The British and the French took the charge, but both countries were weak after `The Great War`. The British had their plates full already, with different struggles to keep the empire together, while France were both weak in both military- and economic sector.

Many scholars agree that this interwar period had no hegemonic leader. As Kindleberger states, there must be a stabilizer, or it won´t be any peace. As I mentioned, Modelski stated that after approximately every 100 years, there will be a new hegemonic cycle, perhaps with a new hegemon. Before American dominance, the British ruled almost 1/3 of the world. There is a saying that the British empire is the place where the sun never sets. Pax Britannica was the peaceful period in the West from 1815 to the start of WWI. Naval dominance was the key for this hegemonic period.

Naval dominance is also important for the Americans. In an economical view, the country lies strategical for trade from both Europe and Asia. The military presence in form of the Navy throughout the trading routes, are there to show their superior hegemonic power. As Keohane (p.33) states it, to be considered a hegemonic in the world political economy, you have to have every one of the four pointers I gave earlier. The Americans build their economy to a peak, while the military power increased. Military power does not include in the equation of the Hegemonic Stability Theory, but military power is dependent on economic resources like raw materials. Exporting has also given the Americans a good income. Based on numbers from 2016, United States exported arms worth almost 9,9 billion dollars. Compared to number 2 and 3 on the list, Russia and Germany, the US sold approximately 1 billion more than these two countries combined. Even if expenses for the military is just 3,3% of GDP, it will be more than what 15-20 military states uses together. (World Bank Data^[2]) So the military power cannot be questioned at all.

The Bretton Woods agreement from 1944 strengthened the position of US as a powerhouse in global economy. Formed in the village of Bretton Woods, 45 countries agreed on the framework the `New World Order`, which was international economic cooperation. The International Monetary Fund (IMF) and The World Bank was formed in this conference, which was believed to help the countries avoid dreadful policies that created the Great depression in 1929. (IMF.org) This agreement also included that every one of the 45 states would now use dollar as world´s reserve currency. Dollars would also be converted for gold, for a fixed price of 35$ per ounce. This meant that if a South Korean wine merchant wanted to buy Chilean wine, the transaction would go through with American dollars. The new institutions and the control of the dollars and gold, gave the US an enormous boost and strengthened their economy and power.  

After the second World War, USA and USSR battled for the hegemonic power. There was a bipolar system of power, which two states have the same resources and power. In fact, the US and the USSR had both hegemony. USSR was mostly seen as the counter-hegemon.

In the aftermath of the Cold War, several scholar’s and historian’s claims that the competition between US and the USSR had an economic impact on the USSR, which in turn led to the fall of USSR and DDR. America is our lifetime´s hegemon, but can it change?

The Decline?

Modelski´s cycle theory states that for every 100 years, there has to be a hegemonic change in form of a global war or from a counter-hegemon. The American dominance has now lasted since WW2 and the hundred-year-old prophecy is nearing. So is the hegemonic power declining?

After the Cold War, some predicted ´a unilateral moment´, while some envisioned a decline in US leadership. The institutions that were made for a hegemonic power had already started to crumble before that.

In the 1971, Richard Nixon decided to scrap the idea of using the dollar´s convertibility into gold standard. The dollar was overvalued caused by the failure in the Vietnam War, where the military spending worsened the situation. (IMF.org) This was something that started already after World War II, where the US and the USSR engaged in position war for hegemony. The policy to annihilate communism meant a lot of engaging war or cold wars, where others fought, while the two superpowers watched the situation. One of the main cases that makes the Americans vulnerable, is the failure in some certain wars. The Vietnam War was already lost when it got much attention on domestic level. The people was against it and the Vietnamese used a new type of warfare that shocked and surprised the Americans. The incident in Somalia (1997), helped to paint a picture of a declining hegemon. The failures of Iraq and Afghanistan, alongside with the War on Terror, makes the Americans use more and more money on the military and security. Some feel that the American unipolar centre of power, gave away power to other states, while being the powerhouse of the world.

A real warning came in 2008, when the economic crisis erupted. For many years, most European states and the US had high level of both individual and national, private and public. US entered recession from mid-2008 to late 2009, and this was the worst since the 1930´s depression. (Kent & Young, 2013) The crisis effected almost the whole world. States that were dependent on the US, were also hit very bad. While the US, most of Europe and interdependence states that were affected by the crisis, had to `restart` their economy, two power states from the East signalled for a hegemonic shift.

Russia and China has always wanted to surpass the US as the hegemonic state. China´s economy has flourished the past years. From 1960, where the Chinese had 1/10 of American GDP to be a couple trillion behind, shows China´s desired hunger for world domination (World Bank Data)^[3]. Their military presence in Asia has also made them a military threat.

While Russia stagnate a little bit in the annual growth in GDP, their military presence is present. The recent incorporation of the Crimea shows that Vladimir Putin is not afraid of the US and the rest of the world. An inter-state organisation named `BRICKS`^[4] was formed in 2009 for the purpose of trade and economy (IMF, CIA world Fact book 2009). This inter-state organisation has 1/5 of the world´s GDP and are so powerful that this block can challenge the West (EU and US). It has already discussed about an alternative world currency, which can threaten the dollar even more.

The Greek historian, Thucydides once wrote the relationship between Sparta (hegemon) and a rising power, Athens. He tells about a rising power´ desire to overtake the hegemon and that will make a conflict almost certainty. From America´s point of view, they must find a strategic solution to accommodate the rising powers (China and Russia) peacefully, so they can avoid the “Thucydides Trap” (Paul 2016 – Presidential Address)

And with a new president that has the nuclear future of the world in his hands, the future seems not so bright for American hegemony.

Twice in a row?

So what can be said about this US hegemony in the international economic system? Great Britain had two successive hegemonic power cycles before the American arrival. In a interparadigm debate about the American hegemony, the neorealist would mean that unpolarity is the least stable of all the international structures, while others will claim that unipolarity will preserve the world peace, but that it’s time for a hegemonic change. The threat from the East, China will no doubt want to preserve their ties with the US for economical purposes. Russia knows that it can´t take over hegemonic power all by them self, since US is still a state with enormous resources and power. But the domestic problems can give the Americans a headache. Domestic dissatisfaction of different refenderums, printing out money from the Federal reserves, increases inflation. As Modelski´s theories, you can see a picture of a declining, that eventually leads up to a global war. Institutions that were made for a hegemonic power, will probably endure in the interest of the next hegemonic power, who wants to use the same institutions to gain power.

Could the American military reconstruct the economical spectre of US? The military power of US is no doubt second to none at this moment. It generates many billions per year, just in military contracts and investments. Even if military power is not mentioned in the Hegemony Stability Theory, it could be the time to let the guns speak for hegemonic power and not resources. With armies, you can easily conquer countries with vast resources if you are in need of some? I think we will either experience a new global war, that will be even devastating than previous wars, or the Hegemon, The United States of America, will prevail a new hegemonic cycle by militarization. Either way, the models of Modelski will turn out to be true.

Bibliography

Robert Keohane ;After Hegemony: Cooperation and Discord in the World Economy. Princeton: Princeton University Press, 1984; Pp. 31-64.

Kent, John & Young, John; International Relations since 1945 (2.ed). Oxford: Oxford University Press, 2013; Chapter 15 & 25.

Keohane, Robert & Joseph S. Nye; Power and Interdependence. MIT: The MIT Press, 1987.

Charles P. Kindleberger; The world in depression: 1929-1939. California: University of California Press, 1986.

T.V. Paul (2016). Recasting Statecraft International Relations and Strategies of Peaceful Change. Presidential Address International Studies Association (ISA), 57th Annual Convention, Atlanta, March 17, 2016.