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H-Diplo Roundtable on Copeland’s Economic Interdependence and War

H-Diplo has published a very interesting roundtable on Dale Copeland’s book Economic Interdependence and War. I’d already noted the book as potentially worth a read, as it’s a major recent contribution to the long-standing debate on the relationship between geopolitics and economic interdependence – a topic that many great scholars from Waltz to Arrighi to Modelski have attempted to make sense of. But in the roundtable, it’s noted that Copeland is self-consciously working in the tradition of Kennedy and Gilpin – which piques my interest even further. I re-read some of Gilpin’s IPE scholarship recently, and in my view he is one of the most insightful modern realist thinkers. The relationship between the imperatives of economics and security is not straightforward, and so richly deserving of further exploration. I don’t think it’s much surprise that Copeland takes aim at offensive realism, as any realistic realist theory should acknowledge the difficult trade-offs between different facets of security – especially if it seeks to incorporate the role of political economy.

There’s some sharp disagreement in the roundtable, but it’s interesting to note that the controversies concern two issues that I’ve blogged on in the reasonably recent past. Some questions are raised about whether paradigms are really the best way to organise debates in international relations any more, or whether existing general theories ought to be decomposed into more specific middle-range theories. Classifying arguments into a theoretical taxonomy is a bit of a distraction from substantive debate. Second, a major point of substantive disagreement is over our old friend, relative gains!  Relative gains feature in Copeland’s argument concerning the conditions under which conflict might be preferable to trade. Maass argues that Copeland’s arguments relying on relative gains are flawed for similar reasons to those I discussed in the last post (and a couple of others to boot):

states may concede relative losses to one state in order to achieve relative gains compared to another that poses a greater security threat, they may see their peers engaging in trade and fear being left behind, or they may see the relative gains of trade as fluid rather than fixed and anticipate the balance turning in their favor

Copeland, of course, disagrees with this criticism and argues Maass has missed the wider argument – in which the relative gains issue only plays one part.

I thought the debate over relative gains was long dead, but apparently not. But is it encouraging that such issues are subject to continued debate and elaboration, or a worrying sign that the discipline hasn’t really moved on since the debates of the early 1990s?

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Relative gains are (mostly) bunk

I helped to teach a course on international institutions last term. The course included an overview of the debates from the 1980s and early 1990s over multilateral agreements and the possibility of mutually beneficial cooperation between states. According to most IR textbooks, these debates established an enduring point of contention between Realist and Liberal Institutionalist perspectives – the latter focusing on absolute gains (welfare improvements) and the former on relative gains (share of power resources). I am not sure this is a very accurate summary of current debates in the discipline, I don’t think that there has been much research on relative and absolute gains in quite some time (this and this were the only articles I could find from the last decade). If my grasp on the recent history of the discipline is correct, that this is likely because the initial research programme on relative gains initiated by Mastanduno and Grieco fizzled out pretty fast when the empirical evidence proved to be mixed and inconclusive. More hardcore rational choice theorists demonstrated that the claims made about relative gains being a barrier to cooperation did not really stand up to scrutiny. Liberal Institutionalism won the argument to a large extent, but then mutated into a pretty generic rational choice institutionalism concerned with the same sort of problems of credible commitment and collective action as much mainstream economics and political science – losing touch with discipline-defining debates. So relative vs. absolute gains provides a neat way for textbook writers to distinguish between two ‘paradigms’, but it’s not a division that provides much of a guide to current research in journals like International Organization.

But the division does appear in textbooks, so it’s part of the education of many thousands of students every year. Unfortunately, the argument that if states are concerned with relative gains (share of power resources) they will forgo the benefits of cooperation is bunk and can be shown to be so very easily. In writing this up I discovered that this argument may have been made by Duncan Snidal 25 years ago, no doubt more rigorously. But the fact that its not hard for people like me who lack Prof. Snidal’s expertise in game theory to show flaws in the relative gains argument demonstrates how flimsy the argument is, even granting all the assumptions made by its Hobbist proponents.

Let’s adopt the same soft rational choice approach of many 80s and 90s IR theorists. I’m not convinced by this approach, with its contextless hypothetical examples and stereotyped, oversimplified scenarios, but it’s the ground on which proponents of the relative gains argument chose to pitch.

Suppose states A, B, C and D are states, each with a GDP of 10 trillion dollars. Let’s use GDP as a measure of material capabilities, as many neo-realists do (and with good reason). Each state therefore controls 25% of the material capabilities in the system. If (offensive) neo-realism is correct, each desires to increase their share. They are expected to forgo economic gains if it would also involve larger gains for another state, as this would lead to a reduction in their relative power. Logically, if they are rational as defined within rational choice theory, they would even accept a lower absolute income in order to have a greater share of power resources. It seems, therefore, that asymmetric trade deals that benefit some of our actors more than others would never be struck. This is not the case, however.

Let’s say A offers B a take-it-or-leave-it trade deal that will benefit A by $2trn and B by $1trn. This example follows the discussion on page 105 of Theory of International Politics where Waltz explicitly discusses an imaginary deal skewed 2:1 in favour of one state. If B is concerned with relative gains, should they take this seemingly unfair deal? Contra neo-realism, yes: it increases B’s share of power resources in the system by 0.6% and puts it ahead of C and D in terms of their power ranking. So concern with relative gains will lead towards cooperation even though the terms are unequal. Let’s say that B can offer a similar deal to C and C to D. Assuming that each deal really is a take-it-or-leave it offer in which no better alternative is available, each offer will be accepted because each time it will increase the share of power of both states involved – providing relative gains.

Finally, after this chain of deals, if D can offer A a similar asymmetric deal, will A take it? Unless A is very concerned with a very specific sort of relative gain (i.e. gains or losses relative to the most powerful in the system), then it will. The deals that A and D were not involved in reduced their share of material power, and making a deal – even if it benefits D more – will increase A’s share of power resources.

At the end of the chain of deals, each actor will have $13trn GDP and so the same 25% share of power resources that they started with. Even if they cared only about relative gains, each state has ended up better off and participating in mutually advantageous cooperation.

So under this scenario, relative gains are not a barrier to cooperation. It should be easy to see that under more realistic conditions, the same will apply. A state is unlikely to want to be left out of a multilateral trade deal that provides benefits to others, even if the deal is skewed. In his book Ruling the World  Lloyd Gruber argues that something similar to this process created the clamour to join the WTO in the 1990s – even though many states in the global South preferred its forerunner the GATT. It’s only when the number of states is very small and the distribution of benefits very skewed that we should expect relative gains to matter and to prevent cooperation.

Alternatively, if we abandon the idea that all states are threatening to each other and acknowledge that states are primarily focused on certain specific rivals  then relative gains considerations might be relevant. There’s real world evidence for this: witness concern over French arms exports to Russia in the aftermath of its annexation of the Crimea. As pointed out by my students, one of the most compelling examples of relative gains presenting a barrier to cooperation comes from international environmental negotiations, where the US seems to have been concerned to avoid any agreement that would disadvantage it relative to China.

But in the scenario that neo-realism posits, where all states are rivals, somewhat counter-intuitively relative gains considerations will no longer be relevant as a loss of relative power compared to the other contracting state may be compensated by the relative gain compared to others. 

Starting with broadly Hobbist assumptions, there are other reasons why states might avoid entering into positive-sum multilateral agreements with each other. Waltz notes that states may be concerned with the vulnerability that dependence on a potential enemy or rival might bring. States might guard their sovereignty jealously and be wary of any loss of de jure or de facto independence. But whilst the issue of relative gains might prevent cooperation in some special cases, it isn’t a general barrier to cooperation under conditions of anarchy – even if the system is characterised by competition and aggression. Glancing at the historical record, this should have been fairly obvious: transnational capitalism emerged coterminously with the turbulent European state-system.

Greek Tragedies

Before the weekend, the Monkey Cage featured an interesting article on the Greek debt crisis and Thucydides. In general, I’m not a fan of the way that Thucydides and the History of the Peloponnesian War is trotted out within debates on international relations. The basic problem is that the famous quote plucked from Thucydides’s Melian dialogue, ‘The powerful do what they can, whilst the weak suffer what they must’, is potentially vacuous. There’s a question of whether the quote is even an accurate translation of Thucydides:  apparently, Mary Beard claims that a closer translation would be ‘The powerful exact what they can, and the weak have to comply’, which removes some of the natural necessity of the quote and assigns greater responsibility to the powerful. But putting this to one side, the quotation is circular and tautological if being weak is defined as suffering what one must and powerful means doing whatever one can without restraint. As I’ve emphasised (belaboured?) in discussions with countless students, a lot of power-talk in international relations is vacuous in this regard. These sort of parlour tricks, wheeling out old Thucydides to make seemingly-profound but platitudinous statements, are what provides fairly unsophisticated versions of realism in international relations with their superficial aura of plausibility. To talk about power properly, it’s necessary to distinguish between resources/relationships and outcomes, which enables a much more productive debate about what sort of resources/social relations generate control over outcomes under what sort of conditions.

But the article by Neville Morley is quite a bit better than the usual fare, as it discusses the way in which responses of actors placed positions of strength and weakness differ from what rational choice theories would predict. Thus it seems that the structure of the situation of bargaining among unequals has an influence over the goals that actors pursue. Perhaps this is another case where actors are operating according to heuristics, general strategies that are effective in a range of similar social circumstances. Maybe in their wider social experiences actors are used to using a position of strength to push for maximum advantage and used to shifting to moral appeals and unreciprocated cooperation when they are at a disadvantage. As the evidence I’ve read on cross-cultural experiments with game theory seems to indicate, actors may bring their wider social experiences of competition and cooperation with them into the laboratory.

The article makes some fascinating points about Varoufakis’s own research on game theory and the strategies that he has pursued as Finance Minister. But as someone in the comments points out, Morley’s piece ignores the fact of Athen’s eventual defeat in the Peloponnesian War – Thucydides classic has been read as a tragedy in which the Athenians, who expressed the hubris of the overly mighty in their arrogant dismissal of the moral arguments of the Melians, were eventually visited by nemesis. On this reading, there are lessons for the powerful as well as the weak.

Technical Change Without Growth

A couple of weeks ago the Economist published an interesting article about labour markets and secular stagnation, the problem of low productivity despite apparent technical change in the industrialised world that has attracted the attention of economists such as Krugman, Summers and Cowen. The article examines a number of puzzling features of the current economic conjuncture. It argues that technological change substitutes for medium-skill labour, displacing workers into low-skilled work, leading to a fall in the price of low-skilled labour, making automation of low-skilled work unattractive. So under certain circumstances, technological change may be self-limiting. The article discusses how these features may be related to low aggregate demand and the expansion of consumer credit.

One possible takeaway from this divergence is that productivity is often endogenous to the real wage. Confronted with high real wages, firms reorganise production, invest in training and capital, and take other steps to boost productivity and economise on labour. When real wages are falling, by contrast, the incentive to economise is reduced and productivity lags.

There’s an interesting overlap with some of the analyses put forward by a previous generation of radical political economists, whose work I’ve been taking another look whilst preparing for a undergrad course I’m teaching. Emmanuel argued that productivity doesn’t drive high wages in the industrialised world, high wages drove industrialisation and productivity increases. This argument is too absolutist and is not consistent with most accounts of industrialisation in the West, but acknowledging that productivity is endogenous to the real wage is an important observation for understanding some aspects of the political economy of unequal development. As the Economist article suggests, the level of endogeneity may be greater than previously assumed – with significant consequences for both national political economies and the world economy.

Of course, the Economist doesn’t draw out the full implications of this analysis in terms of power relations and the conflicts of interest that exist between different social groups on a national and global level. Also missing from the article is any sense that technical change involves struggle and the assertion of authority. But hey, for an article in the Economist to acknowledge that ‘Distributional issues are key’ is pretty unusual.

Two Boosts for Elitism

As every first year politics undergraduate will be aware, once upon a time there was a debate within political sociology between elitists and pluralists. Elitists in political sociology, represented by scholars such as C Wright Mills, argued that political institutions exhibit a systemic bias in favour of certain dominant groups within society, i.e. the ruling classes. Pluralists, such as Robert Dahl, argued that no one set of organised interest groups could maintain permanent control of the political process within modern democracies.

Events over the past decade make pluralism seem rather prima facie implausible. One would certainly want some strong evidence to support such a claim during a period of increasing inequality and displacement of the costs of risks taken by globalised financial sectors onto general publics.

Instead, there seems to be mounting evidence from political science – where a basically pluralist outlook tends to dominate – that the elitist theory provides an accurate account of the current state of politics in the OECD. Via Kevin Drum a summary of a pilot survey by Page and Bartels that suggests that the policy preferences of US politicians seem to track the policy preferences of the wealthy much more closely than those of average citizens. Via Chris Dillow a recent paper by Torija that argues that politicians of all major parties work to maximise the preference-satisfaction of the top few percentiles of the income distribution. He argues that this is a new phenomenon that has arisen since the 1970s, which is interesting as it suggests that the problem is less ‘structural’ and intrinsic to capitalist democracies than ‘conjunctural’ and reflecting recent historical circumstances.

What relevance is all of this to international relations? Well, it gives a boost to more elitist/structuralist theories of international relations and foreign policy such as neo-Gramscianism (Robert Cox, Stephen Gill), and might undermine some of the complacency of pluralist theories such as ‘new liberalism’ that regard states as neutral agents that act on behalf of shifting coalitions of social actors.

Charlie Stross, the super-rich, and the declining marginal utility of stuff

About a week ago, Charlie Stross wrote a post musing about the declining marginal utility of material possessions and the question of why billionaires would want to chase after even greater fortunes. He thinks that some of this behaviour is because being super-rich allows you to produce new goods which are not normally available for purchase at any price, i.e. create new inclusive club goods such as novel medical treatments. Interesting, but a bit charitable.

I’d speculate that much of the pursuit of ultra-wealth is motivated by status concerns, as at any point in the income distribution the income gap between oneself and those acquaintances one knows who are wealthier is likely to be greater than the gap between oneself and those acquaintances who are less wealthy. Even billions might seem small potatoes depending on the company one keeps. The second major reason is dynasty-building. Stross’s account is too individualistic. Whenever the wealthy have had the opportunity to bequeath their wealth as an unearned patrimony to their offspring they have done so, such as when British industrialists did their best to turn themselves into a landed gentry. Profits are often turned into permanent rent-producing assets as soon as they can be. Hence the complex systems of trust-funds, offshore bank accounts,  family limited liability partnerships and so on employed by people like Tony Blair. There might be limits to what super-wealth can buy you, but it can increase the chances that your descendants will remain at the top of the heap. In other words, the goal of many capitalists is feudalism.

Crisis Thinkers: Beverly Silver, #OWC and the Variety of Protest Movements Part 1

In addition to her work with Giovanni Arrighi on Chaos and Governance (the inspiration for this blog), Beverly Silver has conducted path-breaking research into the development of organised labour as a political force within the context of the long-term development of the world economy. I can’t due justice to her full argument at the moment with an in depth engagement, but I want to draw out one of the points that she makes and use it to analyse the current situation we find ourselves in.

Whatever happened to organised labour?

Silver notes the variety of different goals pursued by organised labour since it emerged as a political force around the globe, making the distinction between Marxian struggles and Polanyian struggles. The former are economistic battles on the part of labour for a bigger share of the gains from the production process, control over the conditions of work and so on. These can be thought of as workplace or within-industry struggles – the bread and butter of trade unions. Polanyian struggles, however, are broader struggles to secure social protections such as unemployment insurance and health insurance. These struggles are much broader and operate through the democratic public sphere rather than the sphere of production. Social democratic parties, supported by organised labour, successfully prosecuted Polanyian struggles in most ofWestern Europeafter WWII.

A central part of Silver’s argument is the notion that labour struggles take place through a cascading sequence or cycle of torchbearers. So for example, after Western Europe attained industrial maturity, the relocation of the centres of manufacturing to places such asSouth KoreaandBrazilgave rise to new economistic labour struggles in these industrialising nations. Mature economistic struggles often subsequently often turn into social struggles – as in Brazilwhere Lula, former the head of the metal workers union, became president on a Worker’s Party ticket and instituted a highly successful programme of social transfers to the Brazillian poor.

So for all the complaints from protectionists, outsourcing and de-industrialisation in the North seems to have opened up opportunities for the spread of social democracy (or at least welfare capitalism) in the South.

Social democracy comes to the Southern Hemisphere

But where does Silver’s account leave egalitarian struggles in the North, especially in the context of the present crisis? Well, one point of view is that such struggles are left high and dry. Faisal Islam points out that, rather than organising in response to the present crisis, employees are rolling over and accepting pay cuts. In the context of slack labour markets caused by technological change, the weakening of organised labour, immigration and competition from centres of manufacturing in the global South, the possibilities for economistic struggle seem very limited.

Indeed, this situation was anticipated over 30 years ago by Hobsbawm when he suggested that the forward march of labour had been halted. But rather than disappearing completely, the focus of egalitarian struggle has shifted in the advanced democratic nations to action in defence of existing social democratic protections. The site of struggle changed from industry to the broader public sphere. This was to some degree reflected in the writings of political theorists such as Habermas, who focused on the human capacity for communication as the potential source of progressive change rather than looking towards some dynamic within capitalism itself as radicals influenced by Marx had done.

Egalitarian struggles became linked issues such as human rights and sexual orientation, the set of issues arising from what some have called ‘post-material values’ or perhaps more accurately ‘emancipatory values’. So even as the importance of the workplace as a site of politics faded, campaigns for socio-economic equality endured and became linked to struggles to enable all individuals to live with autonomy, dignity and respect – even though these changes also led down the blind alleys of identity politics and anti-scientific thinking. The social basis of support for the egalitarian programme shifted though a process of realignment from the urban working class to a more diverse cross-class alliance including white collar workers, professionals, and networks of individuals involved in issue-specific campaigns.

John Walsh, writing a couple of weeks ago, was right therefore to emphasise that the Occupy protests are notable in that they have little link to wider struggles in the workplace or industry. As Walsh notes, that does limit the potential scope of the protests in important ways and gives rise to illusions such as the fantasy of progress without economic growth. But, like Faisal Islam, Walsh assumes incorrectly that economistic struggles are the only avenue to promoting egalitarian goals. If Silvers’ typology is correct and there are two quite distinct routes to the pursuit of equality in the contemporary world, then the prospects for campaigns on behalf of the interests of the majority within democratic societies might be a good deal better than some acknowledge.

I’ll expand on this further in the next post.

A Terminal Prognosis? The Case for Financial Euthanasia

In the past few weeks the scale of the crisis has escalated once again. The question however is the location of the weak points and hidden fractures within the present system. As Faisal Islam points out, from a certain perspective this does not look like a crisis of capitalism at all. The bargaining position of capital vis-a-vis labour is currently extremely strong in the industrialised North, no doubt because the high levels of unemployment induce quiescence on the part of employees desperate to keep their jobs. Workers are effectively accepting cuts in their standard of living, there is no factory floor challenge to capitalism.

Worryingly for the populaces of the advanced industrial economies, this rather supports the viewpoint that some shock (maybe technological change or the rise of the emerging economies) has occurred which has significantly undercut the market price that labour can fetch in the world economy. If this is the case then things won’t get better after the financial crisis, indeed the GFC might be a signal of massive shifts within the world economy that signal a bleaker future for many workers in OECD nations.

The problem for the ‘no real crisis’ argument, however, is that if shocks of such significance have occurred then the reverberations might themselves be catastrophic. The three clear dangers ahead are that the global financial system may not be able to take the strain of both sorting out bad debt from good and absorbing losses likely to arise from secondary consequences of the crisis; the fact that the structures of political decision making (what Susan Strange called the Westfailure system) are pretty clearly inadequate for the scale of the problem and elites far too insulated from the depths of the crisis; that publics in the North are not prepared for drastic downward revisions in their standard of living and attempts to enforce any such settlement will result in the collapse of the legitimacy of democratic institutions. In this crisis political problems simply cannot be separated from economic problems because an economic solution to the crisis depends on international cooperation and maintainence of domestic order.

Hence the excellent discussion with Paul Mason and Gillian Tett over at the Guardian, in which the two commentators discuss the nature of the risks the liberal international political economy may be threatened with. What is fascinating is that, in the face of such risks, hitherto totally left-field ideas suddenly become thinkable. It’s particularly interesting to read mention of ‘financial repression’, also known as financial euthanasia, by Tett. The term is shorthand for a series of policy steps which close off avenues to financial speculation and force liquid capital into the economy at below market or negative rates. These sort of measures were employed by East Asian economies such as South Korea during their industrialisation, providing a source of domestic seed capital drawn in significant part from small household savings accounts.

Time for Another Roll of the Dice?

Intriguingly enough it was just such measures, which include controls on the movement of capital, that the US took aim at in the 1990s through the IMF as well as other channels. According to the sadly late Peter Gowan this was part of a concerted effort, a ‘global gamble’, to expand the scope for financial capital to operate, providing an enlarged market for the US financial sector to expand.  The idea of financial euthanasia therefore runs against the entire thrust of post-Cold War US geo-economic strategy, the interests of a hugely powerful set of organised interests, as well as the economic orthodoxy which still dominates the mindset of Northern elites. But then again other potential solutions such as monetising the debt and eroding it through inflation are equally radical. It is a testament to the scale of the crisis that such ideas are being floated by journalists working for the Financial Times.