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Unipolar Politics: Realism and State Strategies After the Cold War, by Ethan B. Kapstein and Michael Mastanduno (eds.)
Jonathan Kirshner
What is the political economy of realism? Although there are many examples of realist political economy, there is no clear statement of what core tenets these analyses share. This in turn makes it difficult to identify and assess theories derived from a realist tradition and their shared set of expectations regarding the future. I hope to provide such a baseline in this essay. By building upon basic principles of realist thought, I will specify assumptions and deduce a set of propositions common to realist political economy, and then explore the general consequences of those tenets, and derive a set of more specific expectations. 1
The first section looks at assumptions realism shares with other approaches, particularly in the context of the rise of liberalism in the late eighteenth century. Section 2 then considers what distinguishes realism in the light of that common ground. It identifies two core divergences from liberalism—statism and the salience of security concerns—and derives from these divergences a number of consequences. Section 3 shows how these in turn informed realist analyses of political economy during the Cold War; the final section raises specific realist predictions for the contemporary international political economy. Parts three and four both attempt to evaluate the performance of realist approaches. It will be seen that such an evaluation is difficult for the Cold War era because many of the relevant outcomes during that time were overdetermined. In the current period, however, there will be numerous issue areas where realist analyses yield distinct expectations from other approaches, offering promising tests of theories derived from competing traditions in the years to come.
I. Wealth and Power in the Post-Liberal Synthesis
In 1776 came the revolution, with the publication of Adam Smith’s The Wealth of Nations. Book IV provided an overview of the theory and practice of mercantilism, and then proceeded to dismantle it with devastating critiques. 2 But what was overthrown? For the sake of rhetoric and clarity, Smith simplified mercantilist doctrine and overstated the differences between mercantilism and the liberal alternative he was proposing. 3 While this was true for a number of aspects of mercantilist thought, my focus is solely on those aspects of mercantilism and neomercantilism which inform realism. 4
In fact, there were important continuities between the classical mercantilists and their liberal challengers. This has been widely recognized. Heckscher saw a fundamental continuity between mercantilism and liberalism as reactions against the political economy of medievalism. 5 Most crucially, each school of thought sought to maximize both power and plenty (as evidenced in Smith’s famous support for the navigation acts and subsidies to defense-related industries), and each saw a long-run harmony between those goals. 6
Still, liberalism did bring many fundamental changes. With regard to its implications for realism, the consequences of the rise of liberalism included three basic conclusions: First, that wealth derived from productive capacity, not precious metals. Second, that trade was positive sum, not zero sum. Third, following from the first two, that the balance of trade and treasure was of sharply less consequence than previously believed. Each of these changes represented an important departure from mercantilist thought. 7
What separates neomercantilists from the classical mercantilists is that the former read and integrated the teachings of Smith and other liberals into their own philosophies. Neomercantilists reconstituted mercantilism in the light of the liberal revolution, but they did so by incorporating, not rejecting, these three themes. Both Alexander Hamilton and Friedrich List, two of the founding fathers of neomercantilism, accepted much of the teachings of Adam Smith. Hamilton places his arguments in the context of “exceptions” to liberalism. 8 List is, if anything, even more explicit about the extent to which his proposed interventionist measures must be regarded as exceptional. Regarding trade policy, for example, List places limits on the range of goods eligible for protection and the size of any tariff, and emphasizes the temporary measure of the duration of protectionist measures. Despite his sharp critiques of Smith (more about which below), he argues “notwithstanding, we should by no means deny the great merits of Adam Smith.” 9
With the integration of liberal theories of trade, the terms of the debate over this issue shifted to two new issue areas, the composition of trade and the distribution of the gains (see below). But important areas of agreement also emerged in this era. Most crucially, one can observe a set of shared views regarding economics and power. This is captured in List’s statement, “The power of producing wealth is therefore infinitely more important than wealth itself.” 10 Such sentiments are not distinguishable from those of more liberal proponents of free trade, who argue similarly that “National power depends in large measure upon economic productivity” and, “military power depends upon economic strength.” 11
Thus, despite other divergent views, one result of the liberal revolution was the emergence of a synthesis regarding economics and power. As noted above, liberals and mercantilists shared the view that both power and plenty were crucial and complementary aims of state action. 12 Liberals and neomercantilists also share the view that power flows from productive capability and productive capability from economic growth. These are core assumptions upon which realism draws, but they are not uniquely realist positions, and should be considered part of a common foundation shared with liberalism.
Liberal/Realist Synthesis: Economic growth and capacity are the underlying source of power; economic and political goals are complementary in the long run
This simple statement carries with it a great deal. It broadens considerably the number of elements with which states must be concerned if they hope to survive and prosper in the international system. These include industrial capacity, access to raw materials, and assurance of adequate finance. Additionally, economic growth emerges as an important issue for the sustainability of national security. 13 However, as noted above, these shared views cannot provide the basis for a distinctly realist political economy. Such a conception emerges only when they are combined with assumptions specific to realism.
II. Two Realist Propositions and Their Consequences
What distinguishes realism from other schools of thought, and particularly from liberalism, are two additional propositions, the first regarding war and the second regarding the state.
Proposition 1: States must anticipate the possibility of war.
This proposition is also quite simply stated, but it is a core tenet associated with realism. It is important to stress that the concern for war (and the significance of statism, below) are best conceptualized as dimensions. Realists need not see a constant “state of war,” nor do liberals consider war impossible. Both recognize an international system defined by anarchy in which war is a possible mechanism of resolving disputes and advancing state goals. What distinguishes realists is that they can be placed on that end of a continuum which stresses the likelihood of war, threats of war, and the need for states to shape their policies in the light of this consideration. For E. H. Carr, for example, “Potential war . . .[is] a dominant factor in international politics.” 14
Concern for war was an important aspect of mercantilism, 15 and the view that war was a salient feature of the international system, and was likely to remain so, is one element that was retained in the neomercantilist reconstitution. 16 This is particularly clear in the writings of List, who emphasized the significance of assumptions regarding war in analyses of political economy. “Adam Smith’s Doctrine,” List argued, “presupposes the existence of a state of perpetual peace and of universal union.” But of course, this is not the case. Thus while List recognized the benefits of free trade, he argued that the “influence of war” required states to deviate from some of the policy prescriptions of liberalism. 17
Proposition 2: The state is a distinct actor with its own interests
The central role of the state is also crucial for realism. As with the significance of war, views regarding statism are not absolute, but are held to varying degrees. Thus, non realists do not deny the existence of an autonomous state, they simply differ as to the extent and consequence of that autonomy. Realists stress the state as a distinct entity from the sum of particular interests; as an entity with the capability and inclination to pursue its own agenda; and as the principal actor in international relations. Once again, this strand of realist thought can be derived from a mercantilist tradition, one that became an even more important element of the neomercantilist reconstruction.
Statism, particularly in evidence with regard to state building—internal unification and external closure—is fundamental for both classical and neomercantilists. According to Heckscher, “The state stood at the centre of mercantilist endeavours developed historically: the state was both the subject and the object of mercantilist economic policy.” In fact, more than half of Heckscher’s massive study is devoted to the study of “Mercantilism as a Unifying System,” where, among other things, “The aim was the superiority of the state over all other forces within a country.” 18
The neomercantilist champion of statism and state building is Schmoller. 19 He argued that “What was at stake was the creation of real political economies as unified organisms,” and that state action was required to bring about “a union for external defense, and for internal justice and administration, for currency and credit, for trade interests and economic life.” For Schmoller, mercantilism “in its innermost kernel is nothing but state making.” 20 While not all would share this view, the central role of the state, from the perspective of both international and domestic politics, remains a major theme in realist thought. 21
Four consequences of the realist propositions
From these three foundations—the synthesis on economics and power, and the two realist assumptions regarding the salience of war and the centrality of the state—it is possible to derive a number of interrelated and complementary consequences which form the basic structure of realist political economy. These consequences are not falsifiable predictions, but rough realist generalizations regarding the behavior of states and the nature of international relations. 22
Consequence 1: The State will intervene when the interests of domestic actors diverge from its own.
From the realist view that the state is a distinct actor with its own interests comes the issue of the extent to which these overlap with the sum of the particular interests of actors within the state. Liberals are more likely to see harmony between the interests of the state and the sum of particular interests. There is, of course, variation within the liberal camp on this issue, with some arguing that the existence of externalities creates divergences between private and societal levels of optimal production of various goods, which can be corrected by government intervention. Others see almost no scope for such action. 23
Realists, on the other hand, anticipate that divergences of interest will often arise and that the state will intervene when necessary to defend its interests. These divergences can come from a number of sources, given an autonomous state, but are most likely to arise in regard to issues related to security. This is because in a world where war is possible, states are likely to be very sensitive to national security issues, while, due to a collective action dynamic, individual actors within society are likely to be suboptimally concerned with the common defense. Thus, while power and plenty are complementary in the long run, the state will often be willing to sacrifice short- and medium-term economic gains when tradeoffs present themselves. 24
This is yet another tradition that survived the transition from classical mercantilism to neomercantilism. Mun was able to distinguish between the interests of the commonwealth, the merchant, and the King, noting for example that there will be patterns of trade by which “the Commonwealth may be enriched . . .when the merchant in his particular shall have no occasion to rejoyce.” Similarly, in other conditions the merchant may prosper, “when nevertheless the commonwealth shall decline and grow poor.” Other mercantilists held similar views on the potential incompatibility of public and private interests. 25
List similarly argued that “the interest of individuals and the interest of the commerce of a whole nation are widely different things.” Again, this is particularly likely to be the case when the state, due to its greater sensitivity to security concerns or its tendency to have a longer time horizon than individuals, is more willing to accept short-term economic sacrifices in order to reap greater long run rewards. “The nation,” List argued, “must renounce present advantages with a view to securing future ones.” 26 This contrasts with a liberal perspective, from which List’s statism leads “almost insensibly to the concept of the state as an end in itself and the major end of policy, rather than as an instrument for the promotion of individual welfare.” 27
Statism, especially with regard to the divergence of individual and national interests, is also often manifested in the state’s search for autonomy. States aim to establish and preserve their independence from three encroachments: those of particular domestic interests, other states, and economic forces.
Given the possibility of war, states will strive for national self-sufficiency, in order to assure the ability to produce the means to fight, as well as to reduce vulnerabilities that would result from the disruption of peacetime patterns of international economic flows. This is an important reason why realists tend to be skeptical of arguments touting the benefits of interdependence. For realists, states are more likely to chafe from the frictions that interdependence will present, rather than being soothed by its multilayered embrace. 28 States may also seek to retain a reservoir of resources, or “war chest.” Of course, these actions will direct economic activity along suboptimal paths. Thus complete autarky will rarely be sought—the state will balance its desire for autonomy with its goal of long-run economic growth. 29
That states will seek to insulate themselves from vulnerability to other states and international economic forces can be traced to Aristotle, and is a mainstay of realist thought. 30 This suggests a reciprocal dynamic: market forces will naturally expand in new directions, which will call forth efforts by states to shape and restrain those flows. 31 Krasner has argued that these concerns can be seen most clearly in small, weak states, who feel the brunt of such vulnerabilities most acutely. 32 However, this concern is plainly visible in even the largest of states, such as the United States at the present time or Great Britain a century ago, at which time dissenters from British liberalism called attention to England’s dependence on foreign trade and the dangerous extent to which much of its economic livelihood required the maintenance of peace. They supported state action to reduce these vulnerabilities. 33
Consequence 2: International political concerns will shape the pattern of economic relations
Another important, related consequence of statism in the context of concerns about war is that states will attempt to shape the pattern of international economic flows to serve their security interests. For realists, politics and the threat of war are crucial determinants of the patterns of economic activity, although these forces are often veiled as behavior becomes routinized. 34 Again, in a broad sense, this view is universally held. One recent study documents how the mere existence of the political border between Canada and the United States, nations with extraordinarily few legal barriers to trade, dramatically skews the pattern of economic activity. This serves as a reminder that the very existence of distinct nations is inefficient from an economic perspective, and can be considered “a standing violation of free trade.” 35
Realists, however, stress the ubiquity of power concerns and the weight of their consequences. Given the possibility of war, for example, states cannot simply allow the market to dictate that they specialize in a production portfolio which does not provide for the domestic manufacture of goods vital for the provision of national defense. 36 When states are faced with threats to their survival, “the subtleties of comparative advantage become a foolish irrelevance.” 37
These concerns function not simply through the overt policies designed to shape the direction of trade, but find expression through and are mediated by more structural factors, such as the balance of power and ideology. As Schmoller argued:
Does it not sound to us today like the irony of fate, that the same England, which in 1750–1800 reached the summit of its commercial supremacy by means of tariffs and naval wars, frequently with extraordinary violence, and always with the most tenacious selfishness, that that England at the very same time announced to the world the doctrine that only the egoism of the individual is justified, and never that of states and nations; the doctrine which dreamt of a stateless competition of all the individuals of every land, and of the harmony of the economic interests of all nations? 38
This view was shared by British neomercantilists at the turn of the twentieth century, who argued that free trade policies, which had once served the national interest, were no longer appropriate. Free trade, they argued, was the optimal policy for Britain when it had an economic lead over other states. But mercantilist strategies had been crucial in establishing that lead. Free trade subsequently allowed a relatively advanced England to “crush rival industries in every part of the world, by supplying the markets with goods produced on the better and cheaper methods which were only practiced in England.” Neither doctrine was universally appropriate, contrary to the liberal view. Thus, a shift to neomercantilist strategies in Britain was necessary, “to ward off the dangers which threaten her very existence.” 39
Political concerns can shape economic relations in a number of ways. One of the most distinctive aspects of the realist vision of states’ search for security is the willingness of states to make economic sacrifices in order to achieve political gains. In this respect realism diverges from liberalism, which tends to emphasize economic ends. It distinguishes realism much more dramatically from other schools of thought, such as neo-Marxism, which holds the opposite view. From the radical perspective, power is used to hold in place a system of international capitalism that enforces economic exploitation: the use of power to accumulate wealth.
As noted above, the realist view reverses this relationship. This process was first described by Hirschman. In his book National Power and the Structure of Foreign Trade 40 Hirschman focused on German interwar trading relations. He demonstrated how Germany cultivated a series of asymmetric trading relationships with the small states of southeastern Europe as part of its pre-World War II grand strategy to secure needed raw materials and increase German leverage there. Although inefficient from an economic perspective, redirecting trade to contiguous regions enhanced Germany’s autonomy. Focusing on small states increased Germany’s political leverage there by making exit more costly for others. This asymmetry, plus the relatively sweet deals Germany offered, exerted, as Hirschman noted, “a powerful influence in favor of a ‘friendly’ attitude towards the state to the imports of which they owe their interests.” 41
Realists argue these are pervasive characteristics of the international economy: economic relations purposefully shaped along political lines, and the expenditure of wealth in attempts to purchase political influence. These elements have been used by a variety of scholars to explain the pattern of international financial arrangements, commercial policy, monetary relations, and of course, aid, the direct transfer of resources to gain influence. 42
Consequence 3: International economic cooperation will be difficult to establish and maintain
The difficulty of international economic cooperation, with regard both to reaching agreements and to maintaining them, is another consequence of the propositions of realism. With economic growth underlying long-run military capability, and given concerns for the possibility of war, states will find it difficult to cooperate. Even with the recognition that mutual gains exist, states must still be concerned with the distribution of those gains, lest potential adversaries become relatively more powerful. 43
Helmut Schmidt stated the realist position quite clearly when he observed, “David Ricardo would certainly not like this state of the world economy.” Despite the existence of gains from trade, “What we are witnessing today in the field of international economic relations . . .. is a struggle for the distribution and use of the national product, a struggle for the world product.” 44
Once again, an important contribution in this regard stems from the neomercantilist reformation, after the liberal revolution, of the mercantilist concern for interstate rivalry. Neomercantilists such as Hamilton and List did not deny the gains from trade, but rather raised the question of dynamic comparative advantage: whether specialization imposed by international market forces would put a nation on a trajectory of relatively low growth. 45 If, at the same time, temporary protection or other measures, which, when removed, would allow for specialization in more attractive products, then free trade would not be the optimal policy in the short run. The gains from trade are not denied—rather, this is a classic case of the state imposing short-term costs on society for greater benefits in the long run. Thus the mercantilist concern for the balance of trade is rehabilitated with the neomercantilist concern for the composition of trade. This is also one way in which realists can be distinguished from crude protectionists, who tend to stress the overall balance.
Hamilton argued that “the United States cannot exchange with Europe on equal terms.” Industry left to itself, will not “naturally find its way to the most useful and profitable employment,” because of the “difficulties incident” in initiating enterprise in the context of “superiority antecedently enjoyed by nations.” 46 Worse, states may attempt to manipulate their commercial and domestic economic policies in order to shape the trajectory of comparative advantage. These “bounties, premiums and aids” Hamilton declared to be the “greatest obstacle of all.” State intervention to manipulate comparative advantage has been a perennial concern of realists, and forms the basis of contemporary arguments for strategic trade and industrial policy. 47
Even in the absence of concerns for dynamic comparative advantage, realists would still expect cooperation to founder over the distribution of gains in a static setting. Gilpin argues that “the distinction between absolute and relative gains” is “a fundamental difference in emphasis” which distinguishes realism. While this issue has attracted a great deal of attention recently, it too can be traced to the origins of the approach. Writing in German in 1684, P. W. von Hörnigk stated that the wealth and might of a nation depends “principally on whether its neighbors possess more or less of it. For power and riches have become a relative matter.” A decade earlier, the English mercantilist Coke wrote “if our treasure were more than our Neighboring nations, I did not care whether we had one-fifth part of the treasure we now have.” 48
In contemporary international relations theory, this issue has received a disproportionate share of attention. While the concern for the distribution of mutual gains (the “relative gains” issue) is significant for realist political economy, what ultimately distinguishes realism is not the pursuit of relative gains, but the motives behind that pursuit: the existence of anarchy and the concern for security, as I shall discuss below. Actors in the absence of anarchy routinely seek relative, not just absolute gains in their interactions. Thus while realists offer a fundamental motivational difference for state behavior, the behavior itself (pursuit of relative gains) is not incompatible with other approaches to political economy. 49
While realists expect cooperation to be difficult, there are at the same time exceptions to this rule—exceptions that can also be derived from first principles. 50 As discussed above, states attempting to enhance their influence with other states may make overly generous concessions. This is a reversal of the concern for relative gains, which expands the core of mutually acceptable bargains, and this may be an important feature of asymmetric economic relations. Additionally, structure can also at times mitigate the barriers to cooperation. In a bipolar setting with the expectation of stable military alliances, states’ concerns for the consequences of relative gains can be muted with regard to economic relations with allies. 51 Finally, cooperation can often be sustained because present security concerns cause states to discount narrow economic interests. 52
Consequence 4: Economic change will tend to be associated with political conflict.
Combining the synthesis on economic growth and underlying power with the proposition that states must anticipate the possibility of war leads to some unpleasant realist arithmetic.
Economic change will affect the underlying balance of power. For some states, this will increase perceptions of vulnerability. 53 This can be anticipated even without relying on a realist perspective, since growing states will appear more threatening even if they do not have offensive intentions. For example, consider a state whose economy grows at seven percent per year for ten years. In the tenth year, the absolute level of its annual military spending will be twice what it once was, even if military spending was held constant as a percentage of gross national product. Clearly such conditions are ripe for generating spiral-type conflicts. 54 But realists will expect this problem to be particularly acute, since it is compounded by the fact that the ambitions of growing states may indeed increase. Thus, while all growing states will tend to appear more threatening, some will actually be more threatening, and it may be quite difficult to distinguish one from another. In a world where concerns for war are important, economic change is likely to be a catalyst for political conflict. 55
This has been stressed by a number of realist scholars, who have emphasized the importance of equilibrium in the international system. 56 According to these approaches, in equilibrium, states are satisfied with or unable to alter the status quo, with the result that given the distribution of power, no state sees benefits from challenging the prevailing order. Economic change, however, will affect states differentially, creating divergences between power and privilege. Thus there is a natural tendency for the system as a whole to drift away from equilibrium over time. It is therefore likely that revisionist states will rise to challenge the status quo, and this challenge is often resolved by war. 57
III. The Political Economy of Realism and the Cold War
How well do realist expectations regarding political economy conform to the pattern of activity observed during the Cold War? Unfortunately, there is no easy answer to this question. As will be seen below, they explain some things quite well, but are less successful at other times. This ambiguity is compounded by a number of significant problems, not the least of which are the dangers inherent in post-hoc analysis, particularly with regard to establishing the criteria for evaluation. Additionally, at times when realist expectations are fulfilled, the outcomes are not clearly distinguishable from the expectations of competing theories. Finally, the Cold War, as a bipolar struggle between market and nonmarket economies, led to analytical specializations within the discipline of international relations that skewed realist analysis. This diverted, with prominent exceptions, much of the attention of realism from international political economy. 58 Still, with these caveats, an evaluation of Cold War realist political economy is possible.
Realism is especially successful in arguing that political concerns will shape the pattern of international economic activity. The rich and expanding economic relations between the U.S. and its allies contrast markedly with the controls placed on trade with the communist bloc. 59 The U.S., from its position of dominance within the Western bloc, actively supported a liberal international order. This conforms with a number of realist expectations. The U.S. used its wealth to shape preferences and to support political allies against its principal adversary. It championed openness, which was to its advantage as the technological leader and also served to undermine the imperial preference systems which discriminated against American products. It provided the lion’s share of the start up costs for new international institutions, and those institutions were in turn shaped by America’s vision and served U.S. interests. 60 While much of this is also compatible with other perspectives, 61 there are prominent examples where this is not the case. Important economic flows, such as petrodollar recycling, were shaped by political measures that resulted in patterns clearly at odds with liberal expectations. 62 Additionally, countless other economic relationships—including preferential trading agreements, currency areas, flows of finance and investment, and, of course, aid and economic sanctions—can only be understood as outcomes of international political concerns. 63
Realist expectations perform quite poorly, on the other hand, regarding the desire of states for autonomy. There have certainly been prominent Cold War examples of statism, most obviously in the case of the Soviet Union. Also, Japan is often portrayed as a strong state mediating and shaping economic forces, particularly with regard to its concerns for economic and national security. 64 Even the U.S. has been accused of seeking “to combine the benefits of liberal internationalism and mercantilist advantage.” And the American abandonment of the Bretton-Woods exchange rate system was clearly a reassertion of domestic autonomy from international economic forces. 65 But these episodes have taken place, especially since 1973, in the context of an expanding international economy which has been relentlessly encroaching on state autonomy. This has been manifested in increasingly complex intra-industry and intra-firm trade, larger investment flows, and especially the expansion of financial markets. This latter issue is of particular interest since states engaged in purposeful deregulation of national buffers such as capital controls, and this has led to reduced macroeconomic policy autonomy. 66
It may be argued that international market forces can at times be used by states to advance policy and enhance their authority vis-à-vis domestic actors. This is certainly true in some cases. 67 However, while this explains the strategic and selective use of such forces by states, it cannot account for the type of wholesale abdication of autonomy that many states have allowed to pass. Additionally, retrospective analyses are likely to overcount the number of “strategic” measures adopted by states, since almost any behavior could be so characterized post-hoc. 68 Still, the “irony of state strength” argument does serve notice that the evaluation of state capacity is more subtle than a simple “states verses markets” conception would suggest.
Finally, with regard to state intervention to preserve autonomy, it should be noted that one clearly stated realist proposition in this regard has been falsified. As discussed above, it was argued that small, weak states would be especially willing to make economic sacrifices to enhance their autonomy. But in the past decade, third world states have generally embraced rather than resisted the international economy. 69
With regard to realist predictions about the difficulty of international cooperation, it is especially hard to draw any conclusions. There was a great deal of economic cooperation among the advanced industrial powers during the Cold War, which would seem at a glance to cut against the grain of realist expectations. But every element that realists anticipate would mitigate these difficulties, and promote cooperation, was in place. There was stable bipolarity, asymmetry within the alliance, and a clear security threat, three features argued to enhance cooperation and reduce concern for the distribution of gains.
Indeed, American policy behavior, especially in the early Cold War, both promoted the relative gains of others and was fully consistent with realism. Cooperation in the Western alliance was encouraged not only because of the absence of negative security externalities, but also the presence of positive ones: the U.S. wanted its allies to get stronger so that they might better balance against a common threat. 70 This also raises a more general theoretical point: that concerns for relative gains within a bilateral relationship can be muted by the relative gains such a relationship affords vis-à-vis third parties. 71
Further, it is not clear that evidence of conflicts over relative gains would resolve this issue. 72 For just as realists can explain instances where the concern for relative gains was absent, liberals can explain many fights over relative gains. Liberals would not deny the possibility of conflicts about the distribution of relative gains; these take place in many instances between friendly partners in the absence of threats of force, readily seen, for example, in most transactions between actors within a domestic economy. As discussed above realist analysis in this regard is distinguished principally by its analysis of underlying motives, and not necessarily by its expectations regarding state behavior. Realist motives raise the stakes, and supply an additional source of friction. Actors are not concerned simply with others reneging on promises, a sense of distributive justice, or the need to establish a tough reputation for future negotiations, but rather, as Grieco argues, “states in anarchy must fear that others may seek to destroy or enslave them.” 73 Thus what distinguishes realists’ expectations in practice are not conflicts over relative gains, but sharper conflicts over relative gains; with partners walking away from a significant number of deals with mutual gains left on the table. For both liberals and realists, then, the “core” of agreements is smaller than the set of mutually beneficial deals. The realist subset is simply smaller still. Distinguishing between these subsets in practice is extremely difficult, to the point that it raises serious questions regarding the tractability of such endeavors. It is not clear that a definitive answer to these questions will ever emerge from retrospective analyses of the Cold War era.
Finally, with respect to the relationship between economic change and political conflict during the Cold War, it is again difficult to reach clear conclusions. The relative decline of the U.S. economy among the advanced industrial states would lead realists to expect a reduction in cooperation. This has certainly been the case with regard to international monetary relations, but less so with regard to other issue areas, such as trade.
International monetary and macroeconomic policies have been punctuated by American unilateralism and characterized by discord, most clearly visible in 1971 with the closing of the gold window by President Nixon, who “spoke exclusively the language of national power and national advantage.” 74 The dearth of global monetary cooperation was again prominent in the early 1980s, with the dramatic appreciation of the U.S. dollar, and an administration in Washington that was hostile to the concept of macroeconomic policy coordination. However, this was less the exception than the rule: with a few exceptions, such as the depreciation of the dollar from 1985–1987, international macroeconomic cooperation has been elusive in the past quarter century. 75
On the other hand, in some areas cooperation has been sustained to a much greater extent than would have been predicted given global economic change. There is clearly greater friction in the U.S.-Japan relationship, and new protectionist pressures have emerged in the international economy. 76 But would realists in 1987, for example, have expected the successful completion of the Uruguay round? Another important Cold War economic change, the oil shocks of the 1970s (especially the initial quadrupling of the world price of oil), worked its way through the international economy more smoothly than might have been expected; the West took no action to seize oil fields. 77 Some conflicts have emerged, and others may yet still emerge, from the economic decline and collapse of the Soviet Union, but that Russia did not go down swinging is a fundamental challenge to realist analysis. Perhaps the most dramatic change in the international economy has been the rise of the Asian economies, and especially China. This has not yet led to political conflict, but here clearly there may be shoes yet to drop.
In summary, while much Cold War history is consistent with realist expectations, there are some “misses” as well. More confounding, there are the problems of distinguishing realist expectations from those of competing approaches and establishing adequate criteria for evaluation in a post-hoc analysis.
IV. Realism and the Post-Cold War International Political Economy
One positive aspect of the post Cold War era is that many of the problems associated with evaluating realist theories during the Cold War no longer exist. Obviously, predictions can now be made in advance and the criteria for evaluation established. Further, both bipolarity and international communism, which previously tended to complicate these analyses, have disappeared. Realist predictions can now be less ambiguous and more clearly distinguishable from those of other perspectives. In fact, the coming years are likely to offer excellent laboratories to compare competing theories. This final section presents a number of predictions and evaluates some of the preliminary evidence—of course, the future will speak for itself.
Five Realist Predictions 78
1. China will become increasingly involved in international conflict
With its dramatic economic growth and large absolute size, China is for realism a prime candidate for conflict and war. Writing in 1988, Kahler argued that international stability was likely to persist “until the elite of another ascendant power (China?) discovers the means to reinforce its military ambitions with economic success.” 79 The prospects for conflict in this region have been stressed by other scholars as well. 80 A peaceful China is virtually incompatible with a number of realist theories. At the same time, the liberal perspective would expect contemporary economic change to reduce China’s aggressiveness, as economic growth and international trade decentralizes power within China and creates vested interests in continued peace. Growing interdependence will also expand bargaining opportunities and reduce the likelihood that disputes which do arise will spill over into war. Thus China’s international behavior in the coming years will offer a distinct test of realist predictions. 81
Caution must be taken, however, in establishing the criteria of evaluation in this case. China has appeared increasingly aggressive toward Taiwan, for example, but it would be a mistake to draw general conclusions from China’s behavior over this peculiar issue area. On the other hand, the threshold can be set too high: China may become increasingly assertive and force prone even in the absence of a great-power war. The initial evidence does suggest that China is increasing its military capability to enhance its international status, and that its buildup is neither motivated by defensive concerns nor in response to an increasingly threatening international security environment. 82 It remains to be seen how these changes affect international politics in the region.
2. States will reassert control over international economic flows
Another clear contrast between liberal and realist expectations has to do with the growth of the international economy. As mentioned above, that expanding economy has made dramatic encroachments on sovereignty in the past quarter century, in trade, investment, and particularly finance. 83 A liberal perspective would be to expect that these changes are irreversible, or at least highly likely to continue. Realists, however, must expect states to find these challenges to autonomy intolerable, or at least highly objectionable, and anticipate that states will attempt to constrain these forces. It is not sufficient for realists to note, however accurately, that there have been periods of history where the international economy imposed even greater constraints on states. 84 Especially given the threats these trends pose to crucial state concerns such as defense autonomy 85 and control over macroeconomic policy, the absence of clear efforts by states to reassert control over many of these flows will challenge fundamental realist conceptions. 86
There is still no evidence that states, individually or collectively, are attempting to reassert greater control over international market forces. Hints can be seen in the reemergence of a protectionist-isolationist wing in the Republican party of the United States, which dominated the party in the first half of this century. But at this stage these groups and their potential allies on the political left represent a disarticulated politics of dissent that has not influenced policy. More sober proposals designed to provide greater policy autonomy by modulating the balance of power between state and market, such as through small taxes on international financial transactions, have to this point attracted little attention and even less enthusiasm. 87
3. Multilateral economic cooperation among the advanced industrial states will decline
Many of the changes associated with the end of the Cold War, including the recession of a common military threat and increased economic symmetry among Europe, North America, and Japan, will reduce realist expectations of cooperation. 88 As discussed above, realists consider cooperation inherently difficult under most circumstances, but there can be mitigating factors that allow for increased opportunities: shared security concerns, stable bipolar alliances, and asymmetry. With these factors all receding, 89 states will be even more concerned with relative gains, and less willing to maintain agreements in hard times. 90 While this essay has stressed the difficulty of distinguishing between contrasting expectations regarding the overall level of cooperation, this problem is somewhat less acute in forward-looking analyses where explicit predictions can be established and tested. Good starting points are offered by trade and monetary relations. From the realist perspective, global trade liberalization should stall, and prospects for reforming the international monetary system should be quite slim. 91
Of the many possible criteria to evaluate realist expectations regarding multilateral cooperation, three barometers stand out. First, regarding international trade, there is the degree to which the transition from the ratification of the Uruguay accords to their implementation in practice is successful. Second is the level of progress toward multilateral management of international monetary and financial relations, given the obvious demand for cooperation in these areas. Fred Bergsten, for example, argues that the international system “most urgently requires . . .supervision and regulation of capital markets.” 92 Third, and providing a bridge to the next prediction, is the extent to which broad multilateral cooperation is displaced by narrower substitutes.
4. The global economy will become increasingly characterized by group discrimination
This relates to the previous two predictions. Despite the search for autonomy, it must be recalled that realists also are sensitive to the importance of economic growth. Engaging the international economy provides expanded opportunities and greater prospects for growth. Thus for realists, states face tradeoffs between complete autarky and unfettered internationalism in the pursuit of their multiple goals. Economic discrimination by like-minded states against outsiders (liberalization within the group, with common external barriers) is the realist predicted compromise of the twenty-first century, combining relative autonomy with international economic opportunity. Given concerns for autonomy, there will be a tendency for such discriminatory groups to be regional. But since some states will count fierce adversaries among their close neighbors (precluding intimate economic relations between them), group discrimination will take on a variety of geographic patterns. With this caveat in mind, it is convenient to label group discrimination “regionalism.” According to Gilpin, then, “a mixed system of nationalism, regionalism, and sectoral protectionism is replacing the Bretton Woods system of multilateral liberalization.” Because of these pressures, he writes, “loose regional blocs are the likely result.” 93
In many cases, regional economies also re-create the asymmetries that no longer exist in much of the international economy. In the context of asymmetry, realists also see greater prospects for cooperation, for reasons discussed above. Thus realists would expect trade, investment, and other economic flows to grow even faster within discriminatory groups, compared with global growth, than could be explained by economic proximity, or even by differential rates of economic growth. 94 Also compatible with realist expectations would be the rise of formal regional agreements and institutions designed to encourage these trends, and the rise of distinct spheres of monetary dominance.
5. European unification will falter
Although realist theory predicts increased regionalism in the global economy, states’ concerns for autonomy place limits on how deep regional economic integration is likely to extend. While realists will expect Europe to remain a region with increasing external discrimination and perhaps even greater internal cooperation, this will not lead to political unification. Once again, the end of the Cold War has changed factors that lead to distinct realist expectations. The decline of the Soviet Union removes much of the realist glue binding Western European states together. Similarly, the unification of Germany will change the ways in which all of the states in the region calculate their interests. The pressures placed on the German economy by unification, for example, contributed to the factors which led to the EMS crisis of 1992, displaying the increasing tension between narrow and regional interests to which recent trends in Europe have contributed. The question of future monetary cooperation in Europe offers a useful gauge of competing theories. 95 The recent stumble would appear to support realist approaches. If the EMU is put on the back burner indefinitely, this would provide further confirmation of realist expectations. If on the other hand, existing informal cooperation is strengthened and progress toward monetary union resumes, the evidence would point in the opposite direction. 96
Conclusion
For a number of reasons it has been difficult in the past to evaluate the political economy of realism. The tradition of realism has generated a heterogenous collection of theories, and the relationships between them have not always been obvious. The problems inherent in post-hoc evaluation and the existence of overdetermined outcomes have further complicated matters. This essay has argued that realist theories share a set of core assumptions that yield distinct expectations. While this does not result in a unique or uniform realist political economy, it does offer a vision of a coherent constellation of realist theories. With the end of the Cold War and the a priori deduction of specific predictions, the coming years will provide the opportunity to test a number of specific realist theories.
Acknowledgment
I thank the other authors in the volume, and especially Ethan Kapstein and Michael Mastanduno, as well as Rawi Abdelal, Tom Christensen, David Edelstein, Karl Mueller, Alan Rousso, and an anonymous reviewer at Columbia University Press, for comments on earlier drafts of this essay.
Endnotes
Note 1: This chapter is not, then, designed to be a review of contemporary realist literature. Its goal is to establish the foundations common to realist approaches to political economy. Back.
Note 2: Adam Smith, An Inquiry into the Nature and Causes of The Wealth of Nations (Chicago: University of Chicago Press, 1976 [1776]), esp. 1: 450–73, 496–502, 513–24; 2: 3–10, 103–57. Back.
Note 3: Lars Magnusson, Mercantilism: The Shaping of an Economic Language (London: Routledge, 1994), 28; J. B. Condliffe, The Commerce of Nations (New York: Norton, 1950), 67. W. A. S Hewins, “The Growth of English Industry and Commerce in Modern Times” Economic Journal 2 (December 1892): 699. For Smith’s caricature, see Wealth of Nations, 1: 450–56. Back.
Note 4: It is important to note that this paper does not equate mercantilism or neomercantilism with realism. The meaning of realism in the context of political economy is defined explicitly below. Mercantilism and its variants are of great interest because they represent important economic doctrines often associated with and which have contributed to realist thought. However realists will view liberal economic doctrines, such as free trade, as the optimal strategy for some states in certain settings.
Thus, this essay will not aim to provide a comprehensive definition of “mercantilism.” Mercantilist doctrines are heterogenous and many of its crucial concerns, for example theories regarding the importance of the monetary circulation, are not relevant for the study of realism. On these issues see Lars Magnusson (ed.) Mercantilist Economics (Boston: Kluwer Academic Publishers, 1993); A. V. Judges, “The Idea of a Mercantile State,” Transactions of the Royal Historical Society (fourth series) 21 (1939); Jacob Viner, “English Theories of Foreign Trade Before Adam Smith,” in his Studies in the Theory of International Trade (New York: Harper, 1937); Eli F. Heckscher, Mercantilism (2 vols.) (London: George Allen Unwin, 1935) Back.
Note 5: Heckscher, Mercantilism, see for example 1: 26, 456; 2: 13–14, 271, 285, 316, 328; Schumpeter wrote “We have seen that, as far at least as economic analysis is concerned, there need not have been any spectacular break between ‘mercantilists’ and ‘liberals.’ ” History of Economic Analysis (New York: Oxford University Press, 1954), 376. See also William D. Grampp, “The Liberal Elements in English Mercantilism” Quarterly Journal of Economics 66(4) (November 1952): 465–501. Back.
Note 6: Smith, The Wealth of Nations, 1: 484–5; 2: 28. The classic statement of the mercantilist conception of harmony between economic and political goals is Jacob Viner, “Power Versus Plenty as Objectives of Statecraft in the Seventeenth and Eighteenth Centuries,” World Politics 1(1) (October 1948): 1–29. While compelling, this paper dramatically overstates the extent to which Heckscher argued that mercantilists were willing to sacrifice wealth in their pursuit of power. Heckscher was aware of the underlying harmony, and his discussion of power is a small part of a large book. See Heckscher, Mercantilism 1: 25–26, 29; also Magnusson, Mercantilism, 32, 39, 152.
Viner’s treatment of Heckscher’s book is surprising given his earlier statement that “It is a work of the highest quality on both the historical and the theoretical sides, and I am happy to find that where we are dealing with the same topics there is no substantial conflict of interpretation or appraisal.” Jacob Viner, “English Theories of Foreign Trade Before Adam Smith,” p. 3. However, Viner did critique Heckscher’s treatment of power, though more subtly, in an earlier review: see Economic History Review 6 (October 1935): 99–101. Back.
Note 7: Late mercantilist James Stewart argued: “foreign trade, well conducted, has the necessary effect of drawing wealth from all other nations.” An Inquiry into the Principles of Political Oeconomy (Chicago: University of Chicago Press, 1966 [1767]), 283, see also p. 363. On the conception of trade as zero-sum, Heckscher stated: “Scarcely any other element in mercantilist philosophy contributed more to the shaping of economic policy, and even of foreign policy as a whole.” Mercantilism 2: 24. The balance of trade was of great concern to many prominent mercantilists, including Thomas Mun, England’s Treasure by Forraign Trade (Oxford: Basil Blackwell, 1949 [1664]), indeed, the subtitle of the book is “Or, the Ballance of our Forraign Trade is the Rule of our Treasure,” see also esp. pp. 83–86. Richard Cantillion wrote that “above all . . .care must be always be taken to maintain the balance against the foreigner.,” Essay on the Nature of Trade in General (New York: Augustus M. Kelley, 1964 [1755]), 243. Famed German mercantilist Johann Joachim Becher wrote “it is always better to sell goods to others than to buy goods from others, for the former brings a certain advantage and the latter inevitable damage” (quoted in Heckscher, Mercantilism, 2 p. 116). Heckscher argues that “this attitude became crystallized in a demand for an export surplus, a demand which was expressed in every possible way.” On this issue see also Frank Whitson Fetter, “The Term ‘Favorable balance of Trade’,” Quarterly Journal of Economics 49(4) (August 1935): 621–45. Back.
Note 8: Alexander Hamilton, “Report on the Subject of Manufactures” (1791), in Arthur Cole (ed.) Industrial and Commercial Correspondence of Alexander Hamilton (Chicago: A. W. Shaw, 1928), 248. The Report was revised four times by Hamilton over the course of one year. All five drafts, with Hamilton’s own corrections and editorial commentary, are in Harold C. Street (ed.), The Papers of Alexander Hamilton 10 (New York: Columbia University Press, 1966). On similarities between Hamilton and Smith, see Edward G. Bourne, “Alexander Hamilton and Adam Smith” Quarterly Journal of Economics 8(3) (April 1894): 329–48. While Smith clearly had a profound influence on Hamilton, the roots of Hamilton’s thinking can be traced to an important pamphlet he wrote in 1775, “The Farmer Refuted” (New York: James Rivington, 1775), reprinted in Papers 1, esp. pp. 122–55. For more on Hamilton, see Edward Meade Earle, “Adam Smith, Alexander Hamilton, Friedrich List: The Economic Foundations of Military Power, in Peter Paret (ed.), Makers of Modern Strategy (Princeton: Princeton University Press, 1986), esp. pp. 230–44; Edward C. Lunt, “Hamilton as a Political Economist” Journal of Political Economy 3(3) (June 1895): 289–310, offers a broader but more critical discussion. Back.
Note 9: Friedrich List, The National System of Political Economy (London, Longmans, Green, 1885), 308–314; 351 (quote). The National System brought to full flower ideas List had been developing for some time. See his The Natural System of Political Economy 1837 (translated and edited by W. O. Henderson) (London: Frank Cass, 1983), and “Outlines of American Political Economy” (Philadelphia: Samuel Parker, 1927), reprinted in Margaret E. Hirst, Life of Friedrich List and Selections From His Writings (London: Smith Elder, 1909). For more on List, see W. O. Henderson, Friedrich List: Economist and Visionary 1789–1846 (London: Frank Cass, 1983), Earle, “Adam Smith, Alexander Hamilton, Friedrich List,” esp. pp. 243–58; William Notz, “Frederick List in America” American Economic Review 16(1) (March 1926): 249–65. Back.
Note 10: List, National System, 133 (emphasis in original). Back.
Note 11: J. B. Condliffe, The Commerce of Nations (New York: Norton, 1950), 800. Back.
Note 12: See esp. the four features stressed by Viner regarding the mercantilists, in Viner, “Power versus Plenty,” 10. Back.
Note 13: On these issues, see Susan Strange, States and Markets (New York: Basil Blackwell, 1988); Robert Gilpin, The Political Economy of International Relations (Princeton: Princeton University Press, 1987), esp pp. 328–36; Gilpin, War and Change in World Politics (Cambridge: Cambridge University Press, 1981); Paul Kennedy, “The First World War and the International Power System,” International Security 9(1) (1984): 7–40; Kennedy, The Rise and Fall of British Naval Mastery (London: Ashfield Press, 1976); Rasler and Thompson, “Global Wars, Public Debts, and the Long Cycle,” World Politics (July 1983), 489–516; Hans Morgenthau, Politics Among Nations (5th ed., rev) (New York: Knopf, 1978), esp. p. 126; Klaus Knorr, The Power of Nations (New York: Basic Books, 1975). Back.
Note 14: E. H. Carr, The Twenty Years’ Crisis, 1919–1939 (2nd edition) (New York: Harper, 1964), 109. Back.
Note 15: One of the motives for a trade surplus emphasized by mercantilists was to provide the means to finance war. See for example Henry William Spiegel, The Growth of Economic Thought (3rd edition) (Durham, Duke University Press, 1991), 138; Heckscher, Mercantilism, 2: 17. Back.
Note 16: Edmund Silberner, The Problem of War in Nineteenth Century Economic Thought (Princeton: Princeton University Press 1946), 284. Back.
Note 17: List, National System, 347, 316. These sentiments are stressed throughout the work. On p. 120, for example, List, in reference to Smith, states: “Although here and there he speaks of wars, this occurs only incidentally. The idea of a perpetual state of peace forms the foundation of all his arguments.” Back.
Note 18: Heckscher, Mercantilism, 1: 21 (first quote) 1: 273 (second quote) 1: 273. The discussion of mercantilism as a unifying system takes up 439 of the book’s 779 pages. It should be remembered that this emphasis on statism takes place in the context of transition from medieval political economy, and as such is somewhat less “illiberal” than might be assumed by contemporary readers. Heckscher repeatedly emphasizes how from the perspective of internal commerce, the options of individuals increased during this period. See 2 pp. 273–74; 282–83. Back.
Note 19: Gustav Schmoller, The Mercantile System and Its Historical Significance (New York: Macmillan, 1897). For more on Schmoller, see Nicholas W. Balabkins, Not by Theory Alone . . .The Economics of Gustav Schmoller and Its Legacy to America (Berlin: Duncker and Humbolt 1988); F. W. Taussig, “Schmoller on Protection and Free Trade,” Quarterly Journal of Economics 19(3) (May 1905): 501–11; Thorsten Veblen, “Gustav Schmoller’s Economics” Quarterly Journal of Economics 16(1) (November 1901): 69–93. Back.
Note 20: Schmoller, The Mercantile System, 49, 50 (emphasis in original). Back.
Note 21: As one realist study concluded, “This investigation has shown that the state has purposes of its own.” Stephen Krasner, Defending the National Interest (Princeton: Princeton University Press, 1978), 300. See also Henri Hauser, Germany’s Commercial Grip on the World (London: Eveleigh Nash, 1917), 140–45; Robert Gilpin, U.S. Power and the Multinational Corporation (New York: Basic Books, 1975), esp pp. 26–32. Back.
Note 22: The realist approach to political economy can be assessed, but it is not falsifiable. Specific theories derived from the realist tradition can be falsified.
It should also be clear that as with the core propositions discussed above, these consequences are neither absolute nor inviolable. Rather, they are held by realists with relatively great intensity, and stressed as particularly significant in explaining state behavior. Back.
Note 23: This issue of externalities was pioneered by A. C. Pigou, Economics of Welfare (London: Macmillan 1920), esp pp. 189–96. Coase has argued that size and scope for Pigovian taxes is much smaller than is usually acknowledged. Ronald Coase, “The Problem of Social Cost,” Journal of Law and Economics 3 (October 1960). Some liberals are quite extreme in their minimalist view of the state, arguing it need not even have a monopoly over the production of currency. See F. A. Hayek, Denationalization of Money (London: Institute of International Affairs, 1976). Back.
Note 24: Thus consequence 1 flows from the combination of propositions 1 and 2. This also illustrates how liberal and realist policy prescriptions can diverge from their common base (the liberal/realist synthesis). Back.
Note 25: Mun, England’s Treasure, pp. 25, 26. On the divergence of national and particular interests, See also Spiegel, Growth of Economic Thought, 116, 147 esp. on the writings of Josiah Child; and Viner “Power Versus Plenty,” p. 19. Francis Brewster argued in New Essays on Trade (1702), that trade “will find its own Channels, but it may be the ruin of a nation, if not regulated.” (Quoted in Heckscher, Mercantilism 2: 317). Back.
Note 26: List, National System, 269 (first quote), quoted in Silberner, Problem of War, 155 (second quote). Back.
Note 27: Condliffe, Commerce of Nations, 278. Back.
Note 28: See Kenneth Waltz, “The Myth of National Interdependence,” in Charles Kindleberger (ed.), The International Corporation (Cambridge: MIT Press, 1970); also Waltz, Theory of International Politics (New York: Random House, 1979), chapter 7; Katherine Barbieri, “Economic Interdependence: A Path to Peace or a Source of Interstate Conflict?” Journal of Peace Research 33(1) (February 1996): 29–49; and Norrin Ripsman and Jean-Marc Blanchard, “Commercial Liberalism Under Fire: Evidence From 1914 and 1936” Security Studies 6(2) (Winter 1996–97): 4–50. Back.
Note 29: Carr, Twenty Year’s Crisis, 120–24; Heckscher, Mercantilism, 2: 31, 40–41, 96, 131, 209–10; Magnusson, Mercantilism, 160; Mun, England’s Treasure, 66. For a contemporary example of the tradeoffs sometimes faced by states, see Irving Lachow, “The GPS Dilemma: Balancing Military Risks and Economic Benefits,” International Security 20(1) (Summer 1995): 126–48. Back.
Note 30: Aristotle, The Politics, translated and edited by Ernest Barker (London: Oxford University Press, 1958), 293–95. Back.
Note 31: Condliffe, Commerce of Nations, 435, 832; Robert Gilpin, “Economic Interdependence and National Security in Historical Perspective,” in Klaus Knorr and Frank N. Traeger (eds.), Economic Issues and National Security (Lawrence: The Regents Press of Kansas, 1977). Back.
Note 32: Stephen Krasner, Structural Conflict: The Third World Against Global Liberalism (Berkeley: University of California Press, 1985); see also Robert W. Tucker, The Inequality of Nations (New York: Basic Books, 1977). Back.
Note 33: William Cunningham, The Rise and Decline of the Free Trade Movement (London: C.J. Clay and Sons, 1904), argued that there were “serious grounds for dissatisfaction” with free trade, which had “rendered England economically dependent on foreign countries.” p. 151; see also p. 141. On the U.S., see for example Theodore H. Moran, American Economic Policy and National Security (New York: Council on Foreign Relations, 1993), 41–46. Back.
Note 34: Carr, Twenty Year’s Crisis, 126. Back.
Note 35: John McCallum, “National Borders Matter: U.S. Canada Regional Trade Barriers,” American Economic Review 85(3) (June 1995): 615–23; Arthur James Balfour Economic Notes on Insular Free Trade (New York: Longmans, Green, 1903). It should be noted that Balfour was using this argument as a rhetorical device to support additional deviations from free trade. The rise of dissenters such as Balfour and Cunningham at this period in history lends support to the realist view that the appeal of economic doctrines is greatly shaped by states’ relative positions. Back.
Note 36: Thus consequence 2 flows from the combination of propositions 1 and 2. Back.
Note 37: D. H. Robertson, “The Future of International Trade,” Economic Journal 48 (March 1938): 11–12. Back.
Note 38: Schmoller, The Mercantile System, 80. A modern, general version of this argument is advanced by Krasner, who argues that states’ relative position will determine their individual preferences regarding openness and closure in the international system, and the distribution of power and development between them will determine the ultimate extent of openness. Stephen Krasner, “State Power and the Structure of International Trade,” World Politics 28(3) (1976) pp. 317–47. Back.
Note 39: Cunningham, Rise and Decline, 45 (first quote); Cunningham, The Growth of English Industry and Commerce in Modern Times (5th ed.) (Cambridge: Cambridge University Press, 1912) See Part I: The Mercantile System, on the role of mercantilism in English development; Part II: Laissez Faire, 740, 869 (errors of generalizing benefits of liberalism), 870 (second quote). Cunningham also makes the interesting argument that the revival of protectionism in the 1870s stemmed from the Franco-Prussian war, which ended experiments with liberalism by reminding states of the hazards of the international system. (Rise and Decline, 86) For more on Cunningham, see H. S. Foxwell, “Obituary: Archdeacon Cunningham” The Economic Journal 29 (September 1919): 382–90. Highly critical of Cunningham’s work is Hewins, “The Growth of English Industry.” Cunningham’s arguments serve as a reminder that realists will support “liberal” doctrines such as free trade when they are perceived to serve the national interest. Back.
Note 40: (Berkeley: University of California Press, 1980 [1945]). Back.
Note 41: Hirschman, 29. See also Allan G. B. Fisher, “The German Trade Drive in South-Eastern Europe,” International Affairs 18(2) (March 1939): 143–70; Antonín Basch, The Danube Basin and the German Economic Sphere (New York: Columbia University Press, 1943), esp. p. 178. Back.
Note 42: Herbert Feis states that “The struggle for power among nations left no economic action free.” Europe the World’s Banker 1870–1914 (New Haven: Yale University Press, 1964 [1930]), 192. See also Jacob Viner, “International Finance and Balance of Power Diplomacy, 1880–1914,” Political and Social Science Quarterly 9(4) (March 1929): 408–451; Condliffe, Commerce of Nations, pp. 231–2; Hauser, Germany’s Commercial Grip, 149–51; Feis, The Diplomacy of the Dollar, 1965 [1950]; Emile Moreau, The Golden Franc: Memoirs of a Governor of the Bank of France (Boulder: Westview Press, 1991), esp. pp. 430–53; Jonathan Kirshner, Currency and Coercion: The Political Economy of International Monetary Power (Princeton: Princeton University Press, 1995); David Baldwin, “The Power of Positive Sanctions,” World Politics 24(1) (October 1971); George Liska, The New Statecraft (Chicago: University of Chicago Press, 1960). Back.
Note 43: Thus consequence 3 is the result of proposition 1 given the liberal/realist synthesis. Back.
Note 44: Helmut Schmidt “The Struggle for the World Product” Foreign Affairs 52(3) (April 1974): 442. More generally, Gilpin argues that “in a world of scarcity the fundamental issue is the distribution of the available economic surplus,” War and Change, 67; See also John Stopford and Susan Strange with John S. Henley, Rival States, Rival Firms (Cambridge: Cambridge University Press, 1991), 204, 209–11. Back.
Note 45: This has also become an important element of criticism from other perspectives as well. Joan Robinson, reevaluating Ricardo’s own example, argued that “the imposition of free trade on Portugal killed off a promising textile industry and left her with a slow-growing export market for wine, while for England, exports of cotton cloth led to accumulation, mechanization, and the whole spiraling of the industrial revolution.” Aspects of Development and Underdevelopment (Cambridge: Cambridge University Press, 1979), 103. Back.
Note 46: Hamilton, “Report on Manufactures,” pp. 265, 266. List argued that “under a system of perfectly free competition with more advanced manufacturing nations, a nation which is less advanced than those, although well fitted for manufacturing, can never attain to a perfectly developed manufacturing power of its own.” National System, 316. Yet again, we see that views regarding realism and its consequences are often a matter of degree. Many liberals, for example, are sympathetic to the concept of temporary infant industry protection. The seal of approval was offered by the leading classical economist of the mid-nineteenth century, John Stuart Mill, who wrote this was the “only case” where “protecting duties can be defensible.” Principles of Political Economy (revised edition) (New York: Colonial Press, 1899) 2: 423. Back.
Note 47: Strategic behavior by both governments and firms is emphasized by Hauser, Germany’s Commercial Grip; Cunningham Rise and Decline of Free Trade, 108–9; Balfour, Insular Free Trade, 25. For contemporary analysis, see Laura D’Andrea Tyson, Who’s Bashing Whom? Trade Conflict in High Technology Industries (Washington: Institute for International Economics, 1992). Note Tyson’s emphasis on the composition of trade, deviations from liberal assumptions which make comparative advantage particularly malleable, and those industries where strategic behavior is the most likely to affect the trajectory of market shares, 3–4, 12, 17, 31. See also Douglas A Irwin, “Mercantilism as Strategic Trade Policy: The Anglo-Dutch Rivalry for the East India Trade” Journal of Political Economy 99(6) (December 1991): 1296–1314; Robert Z. Lawrence and Charles L. Schultz (eds.), An American Trade Strategy: Options for the 1990s (Washington: Brookings, 1990); Paul Krugman (ed.) Strategic Trade Policy and the New International Economics (Cambridge: MIT Press, 1986); Gene Grossman (ed.) Imperfect Competition and International Trade (Cambridge: MIT Press 1992). Back.
Note 48: Gilpin, U.S. Power, 33. Von Hörnigk and Coke are quoted in Heckscher, Mercantilism, 2: 22; see also pp. 24, 26, 239. Bacon wrote that princes must remain vigilant “that none of their neighbors do ever grow so (by increase of territory, by embracing of trade, by approaches, or the like), as they become more able to annoy them, than they were.” The Essays or Counsels, Civil and Moral (New York: Peter Pauper, n.d.), 77. For the modern statement, see Joseph Grieco, “Anarchy and the Limits of Cooperation” International Organization 42(3) (Summer 1988): 485–507. Back.
Note 49: On the absolute/relative gains debate, see for example Robert Powell, “Anarchy in International Relations Theory: The Neorealist-Neoliberal Debate,” International Organization 48(2) (Spring 1994): 313–44; Powell, “Absolute and Relative Gains in International Relations Theory,” American Political Science Review 85(4) (December 1991): 1303–20; Duncan Snidal, “Relative Gains and the Pattern of International Cooperation,” American Political Science Review 85(3) (September 1991): 701–26; Robert Keohane, “Institutional Theory and the Realist Challenge After the Cold War,” in David Baldwin (ed.) Neorealism and Neoliberalism: The Contemporary Debate (New York: Columbia University Press, 1993) and Joseph Grieco, “Understanding the Problem of International Cooperation: The limits of Neoliberal Institutionalism and the Future of Realist Theory,” also in Baldwin, Neorealism and Neoliberalism. For an example of how difficult it is to distinguish these behaviors in practice, see Peter Liberman, “Trading With the Enemy: Security and Relative Economic Gains,” International Security 21(1) (Summer 1996): 147–75. Back.
Note 50: Similarly, just as there will be times when realists can anticipate and explain cooperation, there will be conditions under which liberal theorists would predict discord. Back.
Note 51: Joanne Gowa, “Bipolarity, Multipolarity, and Free Trade,” American Political Science Review, 83(4) (Dec. 1989): 1245–1256. Back.
Note 52: One such example is a realist interpretation of the Tripartite Monetary Agreement of 1936. The rise of the fascist threat reduced the salience of economic disputes among Britain, France, and the U.S. Additionally, the agreement was sustained in the face of gross violations for fear that its termination might strain Western relations in general and signal such discord to others. See Jonathan Kirshner, “Cooperation and Consequence: The Politics of International Monetary Relations,” Journal of European Economic History, forthcoming. Back.
Note 53: The prized realist pedigree on this issue originates in Thucydides: “What made war inevitable was the growth of Athenian power and fear which this caused in Sparta.” The Peloponnesian War (New York: Penguin, 1954), 49. Donald Kagan states that this argument “appears to be right in every particular,” The Outbreak of the Peloponnesian War (Ithaca: Cornell University Press, 1969), 77. Back.
Note 54: As noted, a sensitivity to the spiral model and the security dilemma are in no way special to realists. See Robert Jervis, “Cooperation Under the Security Dilemma,” World Politics 30(2) (January 1978): 167–214; Jervis, Perception and Misperception in International Politics (Princeton: Princeton University Press, 1976), esp. ch. 3. Once again, the usual caveat on these issues as dimensions hold. The realist emphasis on concerns for war coupled with these problems lead realists to place a much greater stress on their importance and a much greater expectation of conflict. Of course, this does not mean that economic change must lead to war. Back.
Note 55: Thus consequence 3 is the result of proposition 1 given the liberal/realist synthesis. Back.
Note 56: This consequence, then, relates to the realist analysis of dynamic economic phenomena: changes in relative growth rates. This is distinct from the analysis of static economic phenomena, such as the level of interdependence between states. See the discussion of consequence 1 above and also note 28. Back.
Note 57: Robert Gilpin, War and Change; George Liska International Equilibrium (Cambridge: Harvard University Press, 1957), also idem, “Continuity and Change in International Systems” World Politics 16(1) (October 1963); A. F. K. Organski, World Politics (2nd edition) (New York: Knopf, 1968), esp. pp. 364–67; A. F. K. Organski and Jack Kugler, The War Ledger (Chicago: University of Chicago Press, 1980); Charles F. Doran, “War and Power Dynamics: Economic Underpinnings,” International Studies Quarterly, 27(4) (December 1983): 419–40; Paul Kennedy, The Rise of the Anglo-German Antagonism (London: Ashfield Press, 1980), esp pp. 291–360. Back.
Note 58: During the Cold War, liberals were overrepresented in the subfield of international political economy, following Robert Keohane, who wrote, “it is justifiable to focus principally on the political economy of the advanced industrialized countries without continually taking into account the politics of international security.” After Hegemony (Princeton: Princeton University Press, 1984) p. 137. Realists tended to migrate toward security questions, which, during the special conditions of Cold War, often appeared to be detached from political economy. As Kenneth Waltz wrote, “Never in modern history have great powers been so sharply set off from lesser states and so little involved in each other’s economic and social affairs.” Theory of International Politics, 151–52. On the likely erosion of this division, see Jonathan Kirshner, “Political Economy in Security Studies After the Cold War,” Review of International Political Economy 5(1) (Spring 1998): 64–91. Back.
Note 59: See, for example, Gunnar Adler-Karlson, Western Economic Warfare 1947–67 (Stockholm: Almqvist Wiksell, 1968); Michael Mastanduno, Economic Containment: CoCom and the Politics of East-West Trade (Ithaca: Cornell University Press, 1992); Bruce Jentleson, Pipeline Politics: The Complex Political Economy of East-West Energy Trade (Ithaca: Cornell University Press, 1986). Back.
Note 60: On these issues, see Richard N. Gardner, Sterling-Dollar Diplomacy in Current Perspective (New York: Columbia University Press, 1980). Back.
Note 61: John Ikenberry, for example, argues that Gardner and other scholars place too much emphasis on the differences between the U.S. and British conceptions of the postwar order. By ignoring the shared “technical and normative views,” and “remarkable discretion” of the architects of that order, realist analyses tend to overstate the significance of the fact that the final plan was much closer to the American proposal than the British. “A World Restored: Expert Consensus and the Anglo-American Postwar Settlement” International Organization 46(1) (Winter 1992): 297. Back.
Note 62: David Spiro, Recycling Power: Petrodollar Politics and the De-Legitimation of American Hegemony (Ithaca: Cornell University Press, forthcoming). Back.
Note 63: See for example Richard Cooper, “Trade Policy as Foreign Policy” in Robert M. Stern (ed.) U.S. Policies in a Changing World Economy (Cambridge: MIT Press, 1987), and his earlier “Trade Policy Is Foreign Policy” Foreign Policy 9 (Winter 1972–73): 18–36. Back.
Note 64: Richard Samuels, Rich Nation, Strong Army: National Security and the Technological Transformation of Japan (Ithaca, Cornell University Press, 1994). Back.
Note 65: David P. Calleo, The Imperious Economy (Cambridge: Harvard University Press, 1982), 123. On the primacy of domestic politics and U.S. unilateralism, see Joanne Gowa, Closing the Gold Window: Domestic Politics and the End of Bretton Woods (Ithaca: Cornell University Press, 1983), also John S. Odell, U.S. International Monetary Policy (Princeton: Princeton University Press, 1982). Back.
Note 66: Eric Helleiner, States and the Reemergence of Global Finance: From Bretton Woods to the 1990s (Ithaca: Cornell University Press, 1994). Back.
Note 67: See G. John Ikenberry, Reasons of State: Oil Politics and the Capacities of American Government (Ithaca: Cornell University Press, 1988), as well as his “The Irony of State Strength: Comparative Responses to the Oil Shocks in the 1970s” International Organization 40(1) (Winter 1986): 105–37; also Michael Loriaux, France After Hegemony: International Change and Financial Reform (Ithaca: Cornell University Press, 1991). Back.
Note 68: Compare, for example, Francesco Giavazzi and Marco Pagano, “The Advantage of Tying One’s Hands: EMS Discipline and Central Bank Credibility,” European Economic Review 32 (June 1988): 1055–1082, and Gian Maria Milesi-Ferretti, “The Disadvantage of Tying Their Hands: On the Political Economy of Policy Commitments” The Economic Journal 105 (November 1995): 1381–1402. Back.
Note 69: Krasner, Structural Conflict, esp. chap. 10. Many realists expect small weak states to bandwagon with potentially threatening states, since this strategy might have a better chance at preserving their autonomy than inadequate balancing. Bandwagoning with international market forces, on the other hand, would not preserve autonomy. Krasner predicted, logically, that such states would attempt to insulate themselves from such forces. Steven David, “Explaining Third World Alignment” World Politics 43(2) (January 1991): 233–56, also stresses the internal weakness of third world states as a crucial explanatory variable. Back.
Note 70: U.S. behavior was also consistent with a Hirschmanesque interpretation: the use of its economic power to gain influence, shape interests, and support its vision of the postwar international order. Back.
Note 71: I would like to acknowledge Tom Christensen, who has repeatedly emphasized these points with me in conversation. For a related discussion of U.S. early cold war strategy, see his Useful Adversaries: Grand Strategy, Domestic Mobilization, and Sino-American Conflict, 1947–58 (Princeton: Princeton University Press, 1996).
Somewhat counterintuitively, one could even make the argument that this U.S. behavior in the early Cold War was more consistent with realism than with other perspectives, which cannot account for the cultivation of relative gains for others. Back.
Note 72: For investigations into this question, see Michael Mastanduno, “Do Relative Gains Matter?” International Security 16(1) (Summer 1991): 73–113; Joseph Grieco, Cooperation Among Nations: Europe, America, and Non-Tariff Barriers to Trade (Ithaca: Cornell University Press, 1990). Back.
Note 73: Grieco, Cooperation Among Nations, 217. Back.
Note 74: Harold James, International Monetary Cooperation Since Bretton Woods (Oxford University Press and the International Monetary Fund, 1996), 209. Back.
Note 75: Martin Feldstein, the first chairman of Reagan’s council of economic advisers, provides a representative view: “The United States should now explicitly but amicably abandon the policy of international coordination of macroeconomic policy.” “Thinking about International Economic Cooperation” Journal of Economic Perspectives 2(2) (Spring 1988): 12. On U.S unilateralism, and subsequent events, see Yoichi Funabashi, Managing the Dollar: From the Plaza to the Louvre (Washington D.C.: Institute for International Economics, 1988) esp. pp. 65–70; also I. M. Destler and C. Randall Henning, Dollar Politics: Exchange Rate Policymaking in the United States (Washington D.C.: Institute for International Economics, 1988) esp. pp. 17–25. See also Jeffrey A. Frankel, “Exchange Rate Policy,” in Martin Feldstein (ed.) American Economic Policy in the 1980s (Chicago: University of Chicago Press, 1994). On widespread dissatisfaction with the global monetary system, Peter Kenen, “Summing Up and Looking Ahead,” in Kenen (ed.) Managing the World Economy: Fifty Years After Bretton Woods (Washington D.C.: Institute for International Economics, 1994), 400. Back.
Note 76: See for example Robert E. Baldwin, “The New Protectionism: A Response to Shifts in National Economic Power,” in his Trade Policy in a Changing World Economy (Chicago: University of Chicago Press, 1988), and Susan Strange “The Management of Surplus Capacity: Or How Does Theory Stand Up to Protectionism 1970s Style?” International Organization 33(3) (Summer 1979). Back.
Note 77: Western states did use force to prevent middle eastern oil from falling into unfriendly hands in the Gulf War. Back.
Note 78: The following are predictions of theories derived from a realist tradition. It should be clear that this tradition can accommodate a heterogenous collection of theories, which may differ in their emphases and in the range of their expectations. Back.
Note 79: Miles Kahler, “External Ambition and Economic Performance,” World Politics 40(4) (July 1988): 451. Back.
Note 80: Denny Roy, “Hegemon on the Horizon? China’s Threat to East Asian Security,” International Security 19(1) (1994): 149–68; Aaron Friedberg, “Ripe for Rivalry: Prospects for Peace in a Multipolar Asia,” International Security 18(3) (Winter 1993/4): 5–33. Back.
Note 81: Liberal views on economic relations reducing political conflict can be traced at least as far back as the Manchester School. Richard Cobden advanced these arguments in a speech in Manchester, January 27, 1848. See his Speeches on Questions of Public Policy (New York: Klaus Reprint Co., 1970), 233–41. For the modern reconstruction of these views in the form of “complex interdependence” theory, see Robert Keohane and Joseph Nye, Power and Interdependence (Boston: Little Brown, 1977). Back.
Note 82: See Alastair Iain Johnston, “Realism(s) and Chinese Security Policy in the Post-Cold War Period,” this volume. Back.
Note 83: Helleiner, States and the Reemergence of Global Finance; J. Goodman and L. Pauly, “The Obsolescence of Capital Controls? Economic Management in an Age of Global Markets,” World Politics 46(1) (October 1993): 50–82; Andrew D. Cosh, Alan Hughes, and Ajit Singh, “Openness, Financial Innovation, Changing Patters of Ownership, and the Structure of Financial Markets,” in Tariq Banuri and Juliet B. Schor (eds.) Financial Openness and National Autonomy: Opportunities and Constraints (Oxford: Clarendon Press, 1992); Raymond Vernon, Sovereignty at Bay (New York: Basic Books, 1971); P. Cohey and J. Aronson, “A New Trade Order” Foreign Affairs 72(1) (Supplement 1992–93); Ethan Kapstein, Governing the Global Economy: International Finance and the State (Cambridge: Harvard University Press, 1994). Back.
Note 84: See for example, Robert Zevin, “Are World Financial Markets More Open? If So, Why and With What Effects,” in Banuri and Schor Financial Openness and National Autonomy. Back.
Note 85: On this issue see Ethan Kapstein, “Losing Control: National Security and the Global Economy,” The National Interest 18 (Winter 1989/90): 85–90; Theodore H. Moran, “The Globalization of America’s Defense Industries: Managing the Threat of Foreign Dependence,” International Security 15(1) (Summer 1990): 57–99. Back.
Note 86: For a discussion of the possible sources and consequences of changing state capacity in the post-Cold War era, see Michael C. Desch, “War and Strong States, Peace and Weak States?” International Organization 50(2) (Spring 1996). Back.
Note 87: See for example Barry Eichengreen, James Tobin, and Charles Wyplosz, “Two Cases for Sand in the Wheels of International Finance,” The Economic Journal 105 (January 1995): 162–72. Back.
Note 88: See for example, John Mearsheimer, “Back to the Future: Instability in Europe After the Cold War” International Security 15(1) (Summer 1990): 5–56. On the exceptional stability of the cold war era in general, see John Lewis Gaddis, “The Long Peace: Elements of Peace and Stability in the Postwar International System” International Security 10(4) (Spring 1986): 99–142. Back.
Note 89: Some common threats, Cold War alliances, and asymmetries still exist. But threats are decreasingly salient and common, and relevant asymmetries decreasingly pronounced. Back.
Note 90: Note that this discussion relates to multilateral cooperation. Realists’ mitigating factors may resurface in various bilateral relationships. For example, if China does become increasingly aggressive and threatening, most realists would expect bilateral cooperation between the U.S. and Japan (say) over trade issues, to increase. At the same time, efforts at global trade liberalization could still stall. Back.
Note 91: Liberals need not be so pessimistic, drawing on a tradition that emphasizes both the mutual gains from cooperation and the pacifying consequences of economic interaction. As Hume wrote in 1752, “I shall therefore venture to acknowledge that not only as a man but as a British subject I pray for the flourishing commerce of Germany, Spain, Italy, and even France itself.” David Hume, “Of the Jealously of Trade,” in his Essays: Moral, Political and Literary (London: Oxford University Press 1963 [1742]). Back.
Note 92: Bergsten, “Managing the World Economy of the Future,” in Kenen (ed.) Managing the World Economy, 360. Regarding international monetary relations, Bergsten argues “The system clearly needs reform. Substantial misalignments occur with distressing frequency and persist for prolonged periods, often with severe costs for national economies and open trade” (p. 351). On the distinction between reaching and implementing the Uruguay accords, see for example John H. Jackson, “Managing the Trading System: The World Trade Organization and the Post-Uruguay Round Gatt Agenda,” also in Kenen (ed.), esp. p. 138. Back.
Note 93: Robert Gilpin The Political Economy of International Economic Relations, 395 (first quote), 397 (second quote). Back.
Note 94: Measuring regionalization with a sensitivity to these natural economics can be difficult, but is certainly possible. Also of interest is evaluating whether regional agreements supplement global liberalization or are diverting trade and providing common external protection. On these issues, see Jeffrey Frankel, Ernesto Stein, and Shang-jin Wei, “Continental Trading Blocs: Are They Natural, or Super Natural,” Journal of Development Economics 47(1) (June 1995): 61–95; and Edward E. Leamer, “American Regionalism and Global Free Trade” National Bureau of Economic Research Working Paper No. 4753 (May 1994). Back.
Note 95: On this issue, see Joseph M. Grieco, “The Maastricht Treaty, Economic and Monetary Union and the Neo-Realist Research Programme,” Review of International Studies 21(1) (January 1995): 21–40; also Wayne Sandholtz, “Choosing Union: Monetary Politics and Maastricht,” International Organization 47(1) (Winter 1993), esp. p. 37. Back.
Note 96: On informal monetary cooperation in Europe, see Rawi Abdelal, “The Politics of Monetary Leadership and Followership: The European Monetary System Since the Currency Crisis of 1992,” Policy Studies, forthcoming. Back.
Unipolar Politics: Realism and State Strategies After the Cold War
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