Economic Hegemon to Provide Stability for who?

Economic Hegemon to Provide Stability for who?

By: Gerald F. Witherspoon, Sr. 20160527

The globalized economy is an environment where treaties and agreements (e.g., Treaty of Rome, Maastricht Treaty, the North American Free Trade Agreement and others) are established to influence the political and economic behavior of states within the international system. These legal mechanisms are designed to influence behavior by encouraging free trade and imposing financial penalties to curb wrongful or defiant behavior. For example, the European Communities established the Maastricht Treaty which ushered in the European Union and set a timetable for adopting a single currency (Feinstein 2012).

The European Commission argued that member states would have to adopt the single currency for free trade to be successful, despite the fact the North American Free Trade Agreement increased trade between multiple countries without a single currency. The move toward a single currency by the EC was arguably more political than economic and intended to acquire a unified force to strengthen global influence (Feinstein 2012).

The fact remains, powerful states utilize the most dominant institutions throughout the globalized economy (e.g. World Trade Organization (WTO), the World Bank, and the International Monetary Fund) toward the design and implementation of polices and agreements that undermine the development prospects of weaker states. In some cases these institutions stem the tide, but the long lists of G20 trade-pledge violations – published by Global Trade Alert proves that these economic institutions are far from preventing irregularities or abuse from occurring within the system (Schwabb 2011).

Consider further how Germany was initially reluctant to give up its currency, but did so after realizing the potential to influence the characteristics of the European Central Bank in several ways (Feinstein 2012). As Feldstein pointed out, Germany influenced the “…single policy goal of price stability, prohibited the purchasing of bonds from member governments, a “no bailout” rule for countries that became insolvent, and its location in Frankfurt” (2012). Germany then forced the “stability agreement” that penalized members for excessive budget deficits and debt (Feldstein 2012). It is of overarching importance to recognize that France and Germany then violated these conditions, but were not penalized.

Interestingly, Greece found itself emulating the behavior of the lower-middle-class citizens in the U.S. who eagerly accepted and became entangled by the easy access to credit extended by the predatory lenders in the 1990s (Rahjan 2012).

The conclusion follows that powerful states will join economic regimes or establish and utilize economic institutions in so much as the opportunity for political and economic strengthening has been afforded. In contrast, many developing states remain trapped in an inherently disadvantaged position where accepting predatory and exploitive conditions are the only hope for steadying their declining economic position. Developed states offer aid packages and credit with conditions that ensure the balance of economic power is not shifted away from the donor states.

Any economic system that offers a disproportional amount of influence to member states will be subject to manipulation by the most influential states. So when considering if the world needs an economic hegemon for stability, the question becomes stability for who? An economic hegemon (possessing political power backed up by projective military power – Gilpin 1988) would offer the potential to stabilize the status quo, create further instability for weaker states, and would be perpetually vulnerable to decline amongst self-seeking economic powers.

So there is an economic incentive to join dominant institutions, but there remains the inherent tendency to defect during the prisoner’s dilemma. These institutions are only effective in as much as they produce agreements that can be enforced. As history has proven, those with the most power will exert the most influence on enforcement and compliance with the institutionalized standards. Ultimately, whoever holds the most economic and military power (yes-it requires both), regardless if the actor aspires to hegemony or not, will demand stability within its own sphere of influence while working to install economic instability in places where there is little to no political or economic interest.



Feldstein, Martin. “The Failure of the Euro.” Foreign Affairs 91, no. 1 (January 2012): 105-116. Academic Search Premier, EBSCOhost (accessed May 24, 2016).

Gilpin, Robert. “The Theory of Hegemonic War.” The Journal of Interdisciplinary History 18, no. 4 (1988): 591-613.

Rajan, Raghuram. 2012. “The True Lessons of the Recession.” Foreign Affairs 91, no. 3: 69-79. Business Source Complete, EBSCOhost (accessed May 24, 2016).

Schwab, Susan C. 2011. “After Doha.” Foreign Affairs 90, no. 3: 104-117. Business Source Complete, EBSCOhost (accessed May 24, 2016).


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