Hegemonic Stability Theory

Hegemonic Stability Theory

Introduction

“Hegemonic Stability Theory” states that the global economic system gets steady when a single country is the central economic power. This paper examines the theory of hegemonic stability and how it applies to the current climate of globalism.

The first part of the paper traces the early roots of hegemonic stability theory, and how hegemons have regulated the international liberal economy through various historical periods. The second part examines the growing critiques to hegemonic stability theory. In the last part, the paper looks at the new theories that have been proposed to shed light on the new economic order, and compares how these new theories compare to the theory of hegemonic stability.

Hegemonic Stability Theory

Hegemonic Stability Theory is a theory of economics and political science which argues that the international financial system is more likely to be stable when a single country is the dominant economic power. The theory is most closely associated with Charles P. Kindleberger who argued in his 1973 book The World in Depression: 1929-1939, that the economic chaos between World War I and World War II that led to the Great Depression, can be blamed in part on the lack of a dominant economy. Kindleberger's observation about this specific period was later generalized. In addition to Kindleberger, key figures in the development of hegemonic stability theory include Robert Gilpin and Stephen Krasner.

Neorealists argue that the hegemon supports the system so long as it is in their interests. The system is created, shaped and maintained by coercion. The hegemon would begin to undermine the institution when it is not in their interests. With the decline of a hegemon, the system descends into instability.

Neoliberals argue that the hegemon provides public goods through institutions and works in the best interests of everybody. It is motivated by 'enlightened self-interest'; the hegemon takes on the costs because it is good for all actors, thereby creating stability in the system, which is also in the interests of all actors. With the decline of the hegemon, institutions don't automatically die; instead, they take on a life of their own (see Regime Theory).

Hegemony demands power, which is defined by Susan Strange as the ability of one party to affect outcomes such that their preferences take precedence over the preferences of other parties. The question of whether the U.S. is still a hegemon is tied into whether or not it has lost power. Keohane sees power as tied into resources and production, and because US GDP is now lower relative to others, it implies a loss of power.

Although resources are an important determinant of power, they are not always determinative. For example, the German troops that conquered Western Europe were actually fewer in number than their opponents. Susan Strange uses this logic to argue that the U.S. is still a hegemon.

Bretton Woods system

Toward the end of the Second World War it was realized that more than just a gentlemen's agreement would be needed to achieve meaningful economic coordination between ...