The Legend of Lost Hegemony

30th Anniversary Special Lecture

Susan Strange

In our everday lives we are all familiar with the divergence that creeps in, whenever there are vested interests involved, between reality and the representation of it by those vested interests. We learn even as children to take the representations as we say in English 'magnificent sea views' that turned out to be miles from the beach, the estate agent's description of a house for sale 'ripe for modernisation, in rural seclusion' which turned out to be a ruin at the end of a dirt track into the woods. As we study international relations, we come to realise that the same divergence is. apt to creep in where the vested interests of governments are involved. In my schooldays, the maps of the world on which the British Empire was proudly coloured red were usually drawn according to Mercator's projection an excellent one for navigators but one which also happened to enlarge territories far from the equator. The result was that Canada, Australia and South Africa (still then in the imperial fold) all looked larger than they really were. And in our own times, we have learned that states at war all tend to represent their enemies as inhuman monsters and even to invent horror stories about them. We have heard American politicians talk about the Soviet Union as if its leaders did nothing else but plan the world revolution. And we have read speeches of members of the Polit- buro that referred to the United States as if its only policy goal was the exploitation and impoverishment of working people throughout the world. The time has come, I think, to apply the same scepticism that we use in everyday life to the study of international relations and to some of the theories concerning the use of power in the international system that have been developed and have gained rather wide acceptance. For it is my contention that some of these theories badly misrepresent reality and the fact that they originate and have proved so popular in the United States

-17- ought to have the rest of us, in Europe and in Japan, reaching for the salt. The most distinguished British writer on international relations, Profes- sor E. H. Carr, once wrote that the first thing a student of history should do was to 'know your historian' - that is to say, find out the historian's social position, his political prejudices and ideals so as to understand and therefore discount the bias he was likely to put upon the facts. And the distinguished Swedish economist, Professor Gunnar Myrdal, had the same idea when he once commented on the failure of economists to apply the methods of social science to themselves, or to ask why it was that certain issues, certain questions seemed to interest and concern them so much more than others, and why certain assumptions about the behaviour of men and women that happened to be convenient for economic argument went so universally unchallenged. Heeding both these injunctions, I propose to look more closely and critically at one particular set of theories, the theories of hegemonic stability, that have recently become fashionable in the literature of international relations. That literature is, as we all know, dominated by the great volume of books and journal articles written by scholars in American universities. That fact in itself should make us cautious. I shall therefore have something to say about the origins of these theories, about their (dubious) historical accuracy and about the false assumptions regarding the nature and exercise of power in the international system on which they rest. Such assumptions are crucial because the absence of over-riding authority in international society means that the outcomes in that society are far more determined by relationships of power and far less by law, custom or social convention than is the case within national societies. Contrary to conventional American wisdom, I shall argue that when alernative assumptions are made about the nature of power in the international system and about the nature of the competition between states in the world today, the conclusion is irresistible that the United States still exercises predominant power. But the power it has is far more structural and systemic than relational and is therefore often exercised indirectly rather than directly. The American Empire as perceived by the great French scholar Raymond Aron is not so much a territorial empire like those of past centuries and is much more of an invisible empire. But it is still an empire. I shall conclude therefore with some considerations of how -18- the rest of us, the readers and students of international relations and international political economy outside empire ought to respond, in our research, in our writing and teaching and in our thinking.

Origins The theories that I shall challenge do not constitute a single body of homogeneous or consistent ideas. Rather, they are a bundle of concepts and explanations centering around the notion of the role of the hegemon or leader, the dominant state in an international system, and the connection between the hegemon and the stability of that system. Hegemonic stability theory, as it is referred to, has been put forward both as a general law applicable to widely separated periods of world history and as a specific explanation for the difficulties of our own times. As many of you will know, it comes in two forms: a 'strong' version which says that you cannot have order and stability in the world and more specifically, order and stability in an interdependent world economy without a hegemon to enforce it; and a 'weak' version which says that hegemonic power is a necessary. but not always a sufficient condition for order. In other words, the presence or absence of a hegemon is only a partial answer to the question why there has been order and stability at some times in the international economic system and disorder and instability at others. Associated with this concern with the role of the hegemon has been the notion that order was sustained by the presence of international 'regimes'. These regimes were more than the international institutions set up to administer or facilitate multilateral cooperation, though the institutions like the GATT. or the IMF were often the reflections as well as the instruments of the regime. The word 'regime' embraced the customs and habits of behaviour that, together with the formal agreements and institutions, provided a measure of continuity and stability in relations of states and of other transnational actors like corporations and banks. For many American scholars, it was no accident that the decline of order in the world economy and its financial system appeared to coincide in time with a decline in the effectiveness of United States foreign policy and, as many of them came to think, of American power. Thus the popularity of this set of theories began to grow about 15 years ago with the crack-up of the convertible-dollar and the gold ex- -19- change system at the beginning of the 1970s and with the publication of Kindleberger's scholarly study, The World in Depression. This was a piece of historical analysis which challenged the rather US-bounded interpreta- tion of the causes of economic depression in the 1930s that had been contained in the monumental study by Milton Friedman and Anna Schwarz, A Financial History of the United States. Friedman and Schwarz had put a lot of emphasis on the weaknesses of US monetary regulation (as in. the freedom to deal in shares on margin) and the perversity of US monetary management by the Fed at crucial moments in the crisis years 1929-31. Galbraith, too, in The Great Crash had emphasised the folly of American bankers and the weakness and vacillation of American politicians and officials. No, said Kindleberger, there was more to it than that. Commodity prices had started falling in 1927 and soon after the flow of funds to primary producing countries had begun to slacken. But instead of acting in a counter-cyclical fashion, the United States had allowed the Wall street boom to draw US funds back from Europe, had raised protectionist barri- ers and had failed to support its banking system when panic set in. What such an integrated financial system really needed at such times of crisis, said Kindleberger, was a leader, or hegemon, which would maintain an open market for other countries' surpluses especially of primary products. The hegemon would also keep up a steady outflow of capital for productive investment and, as an international lender of last resort, would keep an open discount window to distressed banks. These were functions which Britain had fulfilled before the first world war and America after the second world war. But between the wars, Britain, herself in trouble, was no longer able to do so and the United States was unwilling. Hence the prolonged depression of the 1930s. The next step in the building of this beguiling edifice of argument was taken by Bob Gilpin in a neat study rather misleadingly titled The United States and the Multinational Corporation. Setting a trend in academic ex- position, Gilpin described and explained the different approaches to world politics taken by liberals, mercantilists (realists, in political terms) and Marxists. He went on to make a polemical argument, based on an interpre- tation of Britain's long decline, that the United States should avoid making the same mistakes as Britain by investing heavily overseas to the detri- -20- ment of its own national economy. Hegemonic power, Gilpin's argument said, brought about its own destruction as the outflow of precious capital sustained the economic development of rival states at the expense of the hegemon's own economic base. The argument appealed strongly to Ameri- can liberals traditionally suspicious of big business and critical of the part played by American corporations in Latin America. It has recently been refined and reinforced by a much more general- ised (and thus more susceptible to question) piece of theorising by an American economist, Mancur Olson, in a book grandiosely titled The Rise and Decline of Nations. In The Logic of Collective Goods, Olson had earlier developed an austere line of economic reasoning which seemed to explain how America's allies could continue with impunity to act as free riders on the security provided by the Western alliance, leaving it to the United States to pay the lion's share of the defence bill. Encouraged by this success, Olson then embarked into economic history with a new general theory. The enjoyment of hegemonic power, Olson argued, conferred special benefits on certain social and economic groups which consequently developed a natural resistance to change and a preference for the comfort of their familiar privileges. A kind of economic and social sclerosis thus set in, clogging the arteries and fatally delaying adaptive change. As a result, the former hegemon lost, first, its economic leadership, and then its political power, to rivals unencumbered with the same coalition of conser- vative interests and therefore better able to take advantage of technological advance and of changing demands from the market. By now, there are variants of hegemonic theory to suit most political tastes. For American radicals, Immanual Wallerstein has developed an alternative general theory of hegemonic rise and decline, building on foundations laid in his large study, The Modern World System (itself following the trail laid by Fernand Braudel). In a series of essays entitled The Capitalist World Economy, Wallerstein usefully defines hegemony to mean more than military predominance or capturing the largest share of the world market, yet less than total omnipotence which he rightly says cannot exist in an interstate system. Hegemony, he asserts, refers to that situa- tion in which the ongoing rivalry between the so-called 'great powers' is so unbalanced that one power is truly primes inter pares; that is, one power can largely impose its rules and its wishes (at the very least by effective -21- veto power) in the economic, political, military, diplomatic and even cul- tural arenas. That power has a simultaneous edge in efficiency in agro- industrial production, in commerce and in finance so great "that all allied powers are de facto client states and opposed major powers feel relatively frustrated and highly defensive vis-a-vis the hegemonic power". In Wallerstein's historical perspective, hegemonic power was exercised on three occasions in the modern world system; by the United Prov- inces in the mid-seventeenth century; by Britain in the nineteenth and by the United States in the twentieth centuries. In each case, there was a short period in which the hegemon had an edge over all others in all three fields of economic endeavour. In each case, the hegemony was secured by a thirty years' war; and in each case, hegemonic decline brought about the erosion of the alliance system which the hegemon had created. Meanwhile, for American realists, Steve Krasner following Gilpin, makes close connection between hegemonic decline and the collapse or disintegration of international 'regimes'. At their peak, hegemons use their power to build frameworks of acceptable rules, institutions and customary usages that will maintain economic order in money and trade. But as they decline in influence, their appetite for international economic order wanes and they are more concerned with their own particular national interest. The conclusion reached via these post-hegemonic interpretations of recent history however, are by no means mutually consistent. Wallerstein foresees the break-up of NATO and a diplomatic reshuffle as a new Kon- dratiev upswing takes hold in the 1990s. Krasner sees the return to what he perceives as normal a Hobbesian all-against-all. Keohane seems to believe that any international cooperation is always to be preferred to none, even when (as in the Multi-Fibre Agreement) it is illiberal, discriminatory and regressive. Without American leadership, therefore, he argues at the end of After Hegemony, it is up to America's allies and partners by renewed collective effort to rebuild the collapsing framework of order in the international economy. 'Shared interests and existing institutions make it possible to cooperate but the erosion of American hegemony makes it necessary to do so in new ways. ' Only a very few American voices have been raised to question the two basic propositions on which this conventional wisdom in all its forms rests. These are assumptions that the United States has lost power in and over -22- the system; and secondly, that this is the reason for the disorders in the system. Professor Bruce Russett of Yale University has written an article asserting that the decline of American power, like the premature reports of Mark Twain's death, had been greatly exaggerated. Professor David Calleo's argument in The Imperious Republic was that the general disorder was not so much due to a decline in power as to the persistent attempt to finance both military supremacy and national welfare programmes with inadequate budgetary resources. Professor Henry Nau in an exchange with Fred Bergsten in Foreign Policy has contended that it has been what he calls the 'domesticist' tendency in US policymaking and what Profes- sor Pat Sewell in a recent paper called more bluntly the 'congenital unilateralism' that is the root of the global troubles rather than the decline of American hegemonic power. But these minority views have been drowned out by the rest. This is the more surprising in a way because the last few years have seen a small but steady stream of journal articles published in the United States, many of them by younger American scholars, who have tried to test the historical validity of hegemonic stability theory as a general law or axiom of the international system. Their conclusions for the most part have thrown grave doubt on some of the basic assumptions of this body of theory.

The record of history One basic assumption was that hegemonic powers at their peak of strength and economic leadership were liberal by inclination. The second was that the system benefited because they were able to influence others to be more liberal than they otherwise would have been. The result of both their liberalism and their influence was that the international economy was more stable and more prosperous as a result of their leadership. But much of the recent American work to say nothing of past work by economic historians in many different countries has denied the validity of hegemonic stability theory. Searching back in the records of the nineteenth century, these American scholars found that Britain as the hegemonic leader of the time had not in fact been consistently liberal in its management of trade. In the three important ports of the Arabian penin- sula controlled by Britain Aden, Muscat and Mocha Britain had been led by compelling strategic considerations to adopt increasingly restric- -23- tive commercial attitudes. And in West Africa, too, where British leadership is often credited with the agreement reached at the Congress of Berlin to maintain an open door policy in trade, Professor David Laitin of the University of California at San Diego has found that political issues had modified British liberalism in West Africa. Meanwhile, another much broader study by Dr McKeown of the University of Pittsburgh of relative tariff levels in Europe in the nineteenth century, has found that many other factors besides British hegemony had influenced European states toward more liberal trade policies and, after 1870, away from them. Trade policy had tended to be more liberal when business was booming than when as in the 1870s it hit a slump, regardless of the power or attitude of the leading economic power. Much the same conclusion emerged from a piece of comparative analysis by Cowhey and Long of trade policies in the 1970s which found that as economic growth slowed in the mid-1970s Euro- pean and American governments had responded to distressed industries with subsidies and protectionist trade measures. The crucial factor had not been the decline of American hegemonic power as argued by Professor Robert Keohane but the state of the world economy as I had argued in a book called The International Management of Surplus Capacity. The evidence of postwar history on these basic assumptions of both weak and strong hegemonic stability theory, indeed, is very damaging to it. It is not hard to show that the United States (like Britain before it) has neither been consistent in its pursuit of liberal objectives nor always successful in persuading others to join in that pursuit. It may be recalled that it was the United States Senate which refused so persistently to ratify the Havana Charter in the late 1940s that the Truman Administration was obliged to settle for the less extensive regime contained in the General Agreement on Tariffs and Trade (GATT). And later, in the mid-1950s, it was the United States which used the waiver clause in the agreement to exempt agricultural trade from the processes of multilateral tariff bargaining in order to protect American farmers from the lower-cost competition of Argentinian beef, New Zealand wool and lamb, Caribbean sugar and citrus and various other products. About the same time as the Havana Charter was being negotiated, the United States in the Truman Declaration on the continental shelf, took an initiative on state jurisdiction which was far from liberal. It was the first -24- step in a process of maritime enclosure that was quickly copied by Latin American governments to extend their fishing rights to the same 200-mile limit that the Americans had declared within their jurisdiction for oil exploration. And after the Latin Americans, followed the Soviet Union and the European Community and every other maritime state. Whether in the long run the enclosure of the high seas is regarded as good because it may help to conserve fishing stocks or bad because it is a limitation on the free play of market forces is beside the point. The fact is that for reasons of domestic policy and to assert the primacy of federal authority over state authority, the United States took the first illiberal step. In a recent study on the protection of American shipyards and the subsidisation of ships flying the United States flag Alan Cafruny concluded that only changes in technology had led the United States to oppose the implicitly restrictive system proposed by both the UNCTAD Code of Conduct on Liner Conferences and the Brussels Package agreed by the European Community. At an earlier stage the United States had turned a blind eye to the illiberal cartel arrangements of the conference system and had allowed its own fleet to take part in them just as it allowed its own airlines to join the IATA cartel in air transport. And when it came to using its persuasive powers backed up by coer- cive leverage to get others to join in the setting up of liberal economic arrangements, the evidence throws even more doubt on the hegemonic dominance of the US after the War. The United States could hardly have been in a stronger position to exercise hegemonic power than at the beginning of the European Recovery Programme. The American monopoly of atomic weapons gave the West Europeans the only effective barrier to a further spread of Soviet influence and domination. American dollars offered the only hope of maintaining imports of food and capital goods necessary to keep up the momentum of economic reconstruction after the damage wrought in war. Another winter of shortage and cold like that of 1946 would have threatened the very stability of at least two governments, France and Italy. Yet, as Alan Milward's recent study of the negotiations between the Americans and the Europeans has shown in considerable de- tail the Europeans were able successfully to resist American attempts to insist on a full-blown customs union between the recipients of Marshall Aid. Wedded by history and sentiment to their particular concept of the -25- role of state in the economy, the Europeans foiled all the efforts of the United States to set a liberalising supranational authority over their re - spective governments. Similar successful rearguard actions had been fought at Chicago in 1945 over the liberalisation of air transport. The Americans were never in so strong a position as they were then, with the only viable aircraft manufacturing industry in existence, an exceptionally thriving home market as a base for foreign operations and a worldwide network of bases plus operating experience both acquired through the war-time operations of its Stra- tegic Air Command. Yet the American demand for the five freedoms and an open market was successfully defeated by the other states setting up the ICAO. Nor did the Europeans cease their resistance to American liberalism in trade. Under Article 35 of the GATT they could individually refuse to extend to any new High Contracting Party the privileges already negotiated on the basis of the most-favoured-nation principle to all the other members. The result was that though the United States could use its hegemonial power in the organisation to insist on the admission of Japan, the Europeans could delay for years the moment when they had to admit Japanese competitors on equal terms to their domestic (and their often sheltered colonial) markets. And by 1962, when the Americans, still concerned for strategic reasons to get Japan admitted to the 'rich man's club', proposed first the short term and then the Long Term Cotton Textile Agreement in order to assure a steady expansion of market access, it was able to do so with only limited success as far as European Community markets were concerned; and even then it could hardly have succeeded without the support of Britain which had its own reasons for wanting to share with others the problems of adjusting to- price competition from Commonwealth textile producers in India and Hong Kong. But while strategic considerations at least until the late 1960s made the Americans act liberally towards Japan, so strategic considerations took precedence over liberal doctrine when it came to American policy toward trade with the communist states. Just as the British had political reasons for preferring restrictive commerce in Arabian ports, so the Americans were convinced that the beneficial i fluence of trade on politics stopped at the Iron Curtain. Here from the middle 1950s on it was -26- the Europeans and especially the West Germans who were in favour of a more liberal trade regime and the Americans who were against it. In short, without unduly labouring the point, it is hard to see Ameri- can liberalism in the 25 years after World War II as a genuine doctrine rather than as an ideology, a doctrine to be used when it was convenient and fitted the current perception of the national interest and one to be overlooked and forgotten when it did not. Moreover, if it were a genuine doctrine it is hard to explain why it should have been so summarily aban- doned in the space of about five years between 1968 and 1973. The British bureaucracy, by contrast, had clung to the liberal doctrines by which they had been brought up long after British economic dominance had faded away even in finance, let alone in manufacturing and in agriculture. The decline of American hegemony could hardly have been so steep that it brought a fundamental shift in the direction of US policy in less than a decade. All that probably can be said with safety is that history both under British and American economic leadership seems to have been rather more compli- cated than Gilpin or Keohane, or even Kindleberger suspected. It is, after all, an equally tenable proposition that the relatively stable economic order of the nineteenth century was due far less to the liberalism of Britain as hegemon than to its helpful provision of a stable currency as a dependable medium for international exchange. The influence of hegemonic power on the trade policies of other states was at best very marginal. It had singularly little effect on the Austro- Hungarian Empire, or on the Turkish and the Tsarist empires, and precious little on the United States. Far more important perhaps were the statutory restrictions on the power of every British government from the Bank Charter Act of 1844 up to 1914 to pay its debts by printing money. The result was that relative prices in international trade were little affected by the purchasing power of the currency in which bills of exchange were mostly denominated. Confidence in the value of money, in the political stability of Britain and in the continued outflow of British capital provided other countries like Japan with the necessary confidence to pursue economic growth. The shorter period of American hegemony, though it began with confidence in the same three important factors, proved much more shortlived. It was strongly marked first by acute dollar shortage, soon followed by dollar glut, and in the last 15 years by a rapid deprecia-

-27- tion of the dollar followed by an equally rapid appreciation. This deprecia- tion had resulted from policies producing a credit expansion geared not to trade as in the 19th century British system but to bank lending through the uncontrolled Euromarket system. The uncertainty that such monetary vol- atility has produced has provided a powerful incentive for banks and other financial institutions to develop new instruments and operations that shifted the consequent risk on to others. But the shift in turn has served to complicate and frustrate the efforts of governments to manage so rapidly changing a financial system. There is also the point on which I shall base next part of my argument about the divergence between the reality of international relations and the biassed representation of it that I find in hegemonic stability theories. This is that it makes a further unspoken assumption that the nineteenth century in which Britain was the economic leader (at first in industry, later in commerce and finance) and the world economy of our own times in which the United States is the economic leader. I think there are very important differences. While many texts on international relations given to our students portray the international system of sovereign states or rather of states claiming to be sovereign as a substantially permanent feature, the fact is that it is still changing and will continue to change in future. Economic changes integrating national societies with each other are bringing political changes. This can be summed up by, saying that the nature of the competitive game between states is not what it was. Instead of competing for territory because land was the prime source of wealth and therefore power could be achieved by acquiring more land, states are engaged increasingly in a different competitive game. They are competing for economic security. This cannot be gained by military security alone though military security, however provided, is often a necessary condition of economic security. With today's costly and changing technologies, such economic security cannot be gained within the limits of any national economy. It requires that the state should have a fat and if possible an invul- nerable share of the world market for goods and services. In doing so, military superiority and an elaborate and expensive publicly financed defence programme may be a very helpful support to the corporate enterprises competing on behalf of the nation in this new international game. Without such a defence programme states must find other means of financ-

-28- ing the investment in scientific research on which their future economic market shares and therefore economic security depend. If this analysis is broadly correct and I firmly believe that it is in this direction that the future study of international relations must go then the power of the United States is not to be measured solely by the state of the military balance with the Soviet Union, its rival superpower in war-making capacity. That balance is important to the United States if only because the other aspects of American power would be threatened if the balance were to tip so far in favour of the Soviet Union that the latter could coerce third parties, especially the Europeans and the Japanese, to sever their ties with the United States. Nor is the power of the United States to be measured by conventional economic indicators of national wealth such as the Gross National Product of the territorial US; the reserves of gold and foreign exchange of the US; or the value of the US dollar; the state of the US balance of payments, still less its balance of trade. For in the new competitive game between states it is not relational power as described in conventional realist textbooks, as the power of A to get B to do something it would not otherwise do but structural power that counts and which, I shall argue, the United States still overwhelm- ingly possesses. It is to a brief description of that structural power that I now turn.

The four aspects of structural power By structural power I mean simply the power to choose and to shape the structures of the global political economy within which other states, their political institutions, their economic enterprises and (not least) their professional people have to operate. This means more than the power to set the agenda of discussion or to design (in American phraseology) the international "regime" of rules and customs. And it is to be found not in a single structure but in four separate but inter-related structures. To my mind, they are like the four sides of a pyramid. Each is held up and supported by the other three. These four structures are not peculiar to the global political economy or world system, whichever you prefer to call it. The sources of superior structural power are the same in very small human groups, like the family or a remote and isolated village community, as they are in the world at large. In each of -29- these, structural power lies with the person or group able to exercise control over (i. e. to threaten or to defend) peoples' security from violence; with those able to control the system of production of goods and services; with those able to determine the structure of finance and credit by which (in all but the most primitive economies) it is possible to acquire purchasing power without having either to work or to trade for it. And fourthly and finally structural power is exercised most powerfully by those who possess knowledge, whether it is technical knowledge, religious knowledge, or leadership in ideas. This is only commonsense but is often obscured by theoretical discus- sions about the nature of the state or power th t are either far too ab- stract or far too narrow. For, so long as the poss'bility of violent conflict threatens personal security, he who offers protection against that threat exercises power and does so even though the same defence force that gives protection may itself be something of a threat to security. Today, as in the past, it is the United States which controls the only force of inter- continental missiles carrying nuclear warheads that are any sort of a match for the corresponding force controlled from Moscow. While the United States possessed 3184 missiles in 1982, all the other members of NATO had only 386. While the US had 124 nuclear submarines, Britain had a paltry 16 and France only 6. Its airforce numbered 918 against 835 for all the other states in NATO. And it is this fundamental asymmetry in the security structure of the non-communist world that is often and easily overlooked in contemporary discussion of international economic issues. Always in the background, there is the contrast between the provision of security by the United States defence forces and the dependence of its partners upon them. The preponderant power of the United States in the security structure operates on land, at sea, in the air and (most markedly) in space. There is no comparison to be made between such a universal basic force and the very limited naval preponderance which was the main backing to British economic power in the earlier period of supposed hegemony. Almost as important is the continued domination by the United States of the world's production structure. Who decides who shall produce what, how and with what reward has always been almost as fundamental a question in political economy as who decides what defence shall be offered -30- against threats to security. This is where the choice of indicators by some American analysts has misled them into thinking of their country as suf- fering economic decline. It is not the share of industrial manufactured products made in the United States nor yet the share of US exports of manufactures to world markets that counts. It is the proportion of total world production of goods and services produced (a) in the United States and (b) by enterprises ultimately headquartered in the United States and responsible to the government in Washington that matters. This lead in high technology production is even more marked if we look at which corporations lead rather than at production in the US, or US exports. For example, of the largest corporations producing computers, the top 6 are all American; as are twelve of the top 20. Between them they produce 62. 3 per cent of total world production and have over 50 per cent of world turnover. IBM alone dominated the market with 35. 6 per cent of world turnover in 1983 though it is now an open question whether it will continue to do so or whether some of the market will go to a number of smaller competitors. The significance of this dominance is underlined by estimates that the present world demand for computers (estimated at $200 billion) will qua- druple by 1991. It is the same story with integrated circuits. Texas Instru- ments and IBM are the leading world producers, ahead even of the Japa- nese. In telecommunications, too, AT&T and ITT are the top two companies in terms of sales. Both are sustained by the great size of the homogeneous domestic market an asset which Americans are inclined to forget but one of which Europeans are acutely aware. Dr. W. Dekker, President of the Phillips corporation recently warned European governments that if they could not combine to provide a comparably uniform home base, Euro- pean companies like Phillips, Siemens, Nixdorf, Bell, ICL, Ericsson and Olivetti would be unable to survive and certainly could not stay based in Europe. "If Europe does not unite, industrial innovation will pass Europe by", he concluded. Broken down into categories as in the table below, we see that while the US shares of basic products (including steel, chemicals, paper) and consumer goods have declined between 1970 and 1980, the US share of high tech production is actually larger and is estimated will more than double the 1970 level by 1990. American service industries similarly will hold their share 50 per cent or more of the world market.

-31- Percentage of total output produced in USA

Source: Data Resources Inc., Business Week, January 14, 1985.

In the oil business, which remains the life-blood of the world's industries and transport systems, it is the seven American oil companies who dominate the top ten, outnumbering and over-powering by far even the largest European and Japanese and OPEC enterprises. In the aircraft business, the big names are still American Lockheed, Boeing and McDonnell Douglas. Six of the top nine companies, including the two largest, are American. In pharmaceuticals, though there are big Swiss of British names, the corporations with the biggest research budgets are American; and three of the largest five companies are American. Among the big industrial conglomerates, hedging their bets across a variety of sectors, it is again the Americans who lead. In short, perusal of any list of the top 100, 500 or 1, 000 corporations producing for a world market will quickly bear out the contention that the decisionmaking power over the world's production structure still lies not in Europe or Japan but still in the United States. Of the leading 300 enterprises in the world, 142 are US-based. One reason for this dominance over production is that the United States provided the first large mass market for manufactured consumer goods. It was the laws and policies of US governments which therefore shaped the corporations who first exploited that market. It was they who then discovered the managerial techniques for controlling international networks of foreign subsidiaries. The mode of operations and the mores of the business world today were first made in America and are still more influenced by developments in the United States than by developments

-32- anywhere else. And the third leg of American structural power is almost as important. It is the ability to control the supply and availability of credit denominated in the dollars, and thus to exert predominant influence for good or ill over the creation of credit in the world's monetary system. In this respect, the conventional indicators are all turned upside down. How much gold and foreign exchange the US government holds by comparison with Germany or Japan is beside the point when the United States is the only government capable of creating dollar assets that are accepted and sale- able worldwide. In some sense in a financial system largely operating in dollars it has no need of reserves. In most countries, whether the balance of payments is in surplus or deficit is an indication of the strength or weakness of its financial position. With the United States the exact con- verse may be true. Indeed, to be able with impunity to run a persistent deficit for a quarter of a century is an indication not of American weakness but of American power in the system. To be able with impunity to decide one August morning that dollars can no longer be converted into gold was a progression from exorbitant privilege to super-exorbitant privilege; the US government was exercising the unconstrained right to print money that others could not (save at unacceptable cost) refuse to accept in payment. The significance of the dollar's predominance has been well illus- trated by the experience of third world and eastern European debt in the 1980s. American banks were foremost in lending to Latin America and were bailed out; German banks were foremost in lending to Poland and were not. The great majority of foreign bank loans were denominated in dollars. When first Mexico then Brazil and Argentina and the rest were unable to service their debt, the United States government possessed two weapons more powerful than those of any other government. It could make advances in dollars to meet an emergency and it could twist the arms of the largest and most influential banks in the system to follow its example with renewed medium term credit. The evidence of American domination of the world's financial system is plentiful enough. Not only were banks in the US responsible for the lion's share of total bank assets in the industrial world, but more important something like three quarters of all these assets were denominated in dollars. The ability -33- of the US to move this market is unequalled. By its unilateral decision in the International Banking Facilities (IBF) legislation of 1981 to allow US banks the same freedom to conduct "offshore" transactions from home, it practically halted the expansion of Eurodollar assets. These had grown in 1980 by $126 billion. In 1982 the growth was a mere $20 billion. And an earlier decision in 1975 to deregulate financial markets has made a comparable change in policy irresistible for Britian as for Japan. Finally, implicit in much of the evidence already cited, there is the continued American domination of the world's knowledge structure. Know- ledge is power, and who is able to develop or acquire the kind of knowledge that is sought by others, and who can control access to it, is able to exercise dominance. In past times, priests and sages often exercised such dominance over kings and generals. The jealousy with which priesthoods guarded their knowledge and restricted access to it has been a common feature of all the great religions. Today, the knowledge most sought after by those who pursue power or wealth, military or corporate leadership, is technology, the technology of new materials as well as new processes and new products. The United States still leads overall in the technological stakes, if one takes together the advanced technology sectors those at the developing stage, i.e. artificial intelligence (space, ecology, oceanmin- ing, and biotechnology) and the fast growing new technologies of micro- computers, microelectronics, telecommunication, robots and factory auto- mation and data processing. (The major flows of data still go to data banks in the US). Three factors have combined to give the US this leadership in knowledge. One is the large home market operating under uniform (or nearly uniform) laws and regulations regarding standards and performance crite- ria. This is something the Japanese have too, and the Europeans do not. The result is. that US companies can more easily specialise, while Euro- pean corporations of comparable size are tempted to diversify, but in so doing often spread their R&D too thin. Where Europe had a 15 per cent share of the world market in semiconductors as recently as 1977, today it has less than 8 per cent. A recent Office of Technology Assessment report to Congress on prospects in biotechnology concluded that the old world of Europe "will be outspent by the new, outplanned by the rising sun (of Japan), and fragmented by national rivalty". The same is true of almost all -34- high technology sectors in which US and Japanese shares have increased while Europe's have declined. The telecommunications field dominated by procurement by national monopolies (usually state-owned) is a classic example of the fatal consequences of political disunity on economic performance. The second is the stimulus, support and headstart offered by a large defence budget. It is true that IBM gained its lead in computers by developing the marketing techniques necessary to find large numbers of commercial buyers. But the first boost came in 1954 from the U S defence programme which financed 60 per cent of IBM's R&D in the 1950s. Simi- larly, the first integrated circuits were built in 1962 and 1963 almost exclusively for defence and the space programme. Even as late as 1968 37% of US production was absorbed by NASA and the Depertment of Defence. Orders from one government carried much less risk and provided an invaluable beachhead for the conquest in commercial markets. Thirdly, there has been the great size, wealth and adaptability of American universities. In Europe's political history the university has been the traditional bastion of political dissidence and opposition. This has sometimes produced an arm's length attitude to both government and business so that European universities have often been slower than their American counterparts to seize the opportunities offered by both to ex- pand research. Professor Gerd Junne of Amsterdam University has found that in biotechnology as in some pharmaceutical fields, the European mul- tinationals spent more in American universities than in the ones at home in Europe. "In biotechnology, more than in other new technology, European managers have located much of their research in America or pay American researchers to do research for them". One further factor early relates more to the dominance of the US over the access to the largest and most innovative capital markets at home in the US and abroad in the so-called Euromarkets. They are able to finance new development rather more easily than even the Swiss or Japa- nese corporations. IBM left its competitors behind when it spent $5 billion developing the third generation of computers. New small enterprises in Silicon Valley find it easier to find venture capital in the US than they would in Europe. All in all, therefore, there seems little question about the combined -35- structural power derived by the US from the security structure, the production structure, the credit (or financial) structure and the knowledge structure. Neither Europe nor Japan can equal the American performance across all four structures. Since each of them interacts with the other three, and the European and Japanese are so far behind militarily, it seems likely that America will enjoy the power to act as hegemon for some time to come. How the power is used is a different question.

The alternative explanation Once American predominance in structural power is conceded, it is possible to look for otherr explanations of international economic disorder and the proliferation despite all the summit conferences of unsolved issues like that of third world debt, volatile and unpredictable exchange rates and commodity prices, the precariousness of international banks, the multiplication of protectionist trade measures and continued conflict over trade in agriculture and services. A far more plausible explanation for the erosion of so-called international regimes than the decline in American hegemonic power seems to lie within the American political system rather than in the role of the United States in the international system. Stability in these regimes requires, above all, some consistency on the part of the leading participant. It is this consistency in policymaking that the United States partly by reason of its constitutional provisions and partly thanks to the coalition-building practised by its dominant political parties is so ill-suited to sustaining. The hallowed doctrine of the separation of powers has been an excellent safe- guard against the abuse of executive power. But it has tended to make policymakers in Washington ever mindful of the capacity of powerful lob- bies and interest groups operating upon or within the Congress to distort, frustrate or even reverse strategies adopted by the White House toward the outside world. Take, for example, the post-OPEC strategy devised and advocated by Henry Kissinger to strengthen the hands of the oil-consuming countries against the organised power of the oil producers. The International Ener- gy Agency was set up with much fanfare and endowed with an elaborate institutional structure. But all its efforts (save the expansion of oil stock- piles, which would doubtless have taken place anyway) were rendered -36- practically ineffective by the inability of the Nixon and Carter Adminis- trations, in the face of Congressional opposition, to raise the domestic price. of energy far enough and fast enough to affect the impact in the short term of demand upon supply. Again, it was the disruptive strategy of introducing the voluntary export restriction (VER) into the conduct of international trade relations that has been most responsible for the decline of a multilateral, non- discriminatory regime based upon the GATT rulebook. And this too was the direct result of pressure from the Congress on successive Administra- tions. By all accounts, too, the Reagan Administration surprised even its own delegations to the UN Conference on the Law of the Sea when, at the very last moment, it decided to reject the draft negotiated text on which so much time and diplomatic effort had been spent. This, at least, could not be attributed to the need to placate the Congress so much as to a reassess- ment of United States' interests in the prospects for exploiting new technology for deepsea mining. Cafruny's study of shipping already referred to comes to a similar conclusion, even while it points to technical change and the shifting im- peratives of the market as exacerbating existing conflicts among domestic interests. Policy, says Cafruny, has become ever more incoherent, "rang- ing (the quote is from a British trade minister) from ruthless anti-trust enforcement to protectionism". Most industry analysts, he says, "refer to domestic politics to explain policy incoherence; indeed, most European and American officials and shipowners reject the proposition that America has a 'shipping policy". In the same way, the complaint that American trade policy is often contradictory, the left hand playing a protectionist card while the right hand bangs down a free trading trump is met by the reveal- ing assertion that America neither has nor seeks to have an 'industrial policy'. Americans may believe this, but no one else does. European companies especially in high technology industries are acutely aware of the advantages which US corporations have enjoyed as a result of fat defence contracts handed out in the initial development phases of products like computers and integrated circuits first needed in large quantities for US defence programmes. Government procurement for advanced technology, and government protection for older industrial sectors seems like a per- -37- f ectly rational (short-term) strategy for safeguarding national economic interests. Besides the inconsistency of American trade policy across sectors, there is the tendency as in monetary policy to sudden reversals of the entire direction of policy. Here, it must be noted that there is far less built-in resistance in the American political system to the tendency to indulge in such political U-turns. No American president has to consider the risk of revolt in the parliamentary party and the consequent prospect of unwelcome early elections. The very certainties of the American system may even as political scientists have observed encourage a certain cyclical repetition of policy shifts for instance, to relieve unemploy- ment at one stage or to check inflation at another. In Washington, there are no permanent senior bureaucrats, as there are in London, Paris, Bonn or Tokyo so firmly esconced in positions of considerable blocking power that they provide a deterrent counterweight to political whims and fancies. From outside the United States, it is not difficult for us non- Americans to see why this sort of explantion is not very palatable to American academics and even less so to American policymakers. It is not easy for either to admit that the conduct of American policy toward the rest of the world has been inconsistent, fickle and unpredictable and that the United States administrations have often acted in flat contradiction to their own rhetoric. While pronouncing the virtues of liberalism for all in trade and investment they have practised partiality towards their own and protection and discrimination against successful newcomers like Japan or Taiwan. While preaching the ideals of internationalism and multilateral decisionmaking they have never hesitated, as Professor Sewell has written, to spring unilateralist surprises on America's friends as well as its opponents or to indulge in sudden ventures in bilateralism with Israel, or Mexico or Canada for example. They have done so because there is and always has been an inherent and unresolved conflict between the two sets of ideas that have influenced American policymakers ever since the end of World War Two between the liberalism preached by neoclas- sical economists and by internationalist political scientists and the realism practised by the US departments of State and Defence. The conflict has been between the realism necessary to any great power (which leads to unilateralist power politics) and the liberalism nec- -38- essary to a great economy dependent on world markets which leads (whenever realism and domestic politics permit) to internationalism. This inherent conflict has been remarked on in a recent article by Charles Krauthammer in the magazine New Republic. But its implications are not likely to gain ready acceptance in American intellectual circles. It is much easier for Americans to assert with Keohane and others that the decline of American power means that collective goals require collective collaboration and that if this is elusive, there is nothing more the United States can do. That argument overlooks the fact that collective action is still possible but only when the US takes the lead when, in short, it still chooses to act as leader. : That is why I think it legitimate to talk of the 'legend' of lost hegemony. For a legend is often something not wholly fictitious; there is often some basis of fact behind it but so overlaid with fantasy (and often ideolog- ical fantasy) that despite the slenderness of the factual realm of ideas and beliefs or what I would call the foundation it exerts tremendous power in the knowledge structure.

The invisible colleges The question then arises for those of us outside the American academic community, how are we to react to this legend? We have the choice between subscribing to, and challenging, the legend. I strongly believe that it is our duty as academics concerned with the pursuit of truth (so far as it is ever possible for humans to find it) to challenge it and to keep looking for alternative explanations and for more constructive prescriptions for the future. I think we have to make an effort to listen for the minority of American (and Canadian) voices that do not tamely go along with the conventional wisdom of the crowd, and to pay them as much attention as we do to the 'barons' of the American academic establishment those who have the entree to Washington and enjoy access to the great American foundations for research funds and the pres- tige and reputation that go with successful textbooks. But we must not only listen. We must be prepared to speak up. When the great Victorian prime minister of my country, Benjamin Disraeli, decided in 1870 that electoral reform must be followed by educational reform he declared, "Now we must educate our masters!". He was a conser- -39- vative, not a revolutionary, but he realised that to preserve what was good in his society, there had to be change. Similarly, to preserve what is good about the American Empire good for us as well as for them we have to have change. And change begins in the realm of ideas, in what I have called the knowledge structure. So far, too many scholars in international relations have succumbed unthinkingly to conventional American ideas. In Shakespeare's great play Julius Caesar, the Roman Senator Cassius, try- ing to persuade his friend Brutus to challenge Caesar's autocratic tyr- anny, is made to say "The fault, dear Brutus, lies not in our stars but in ourselves, that we are underlings". In other words it was not fate or destiny that had made Caesar so powerful but the compliance of the Roman senators. If, as Kal Holsti has said in his last book, it is true that American scholars hardly ever cite non-American authors, perhaps it is not only because they are insular and arrogant and suffer from what I have heard called the NIH (or Not Invented Here) syndrome but also because we non-Americans have not spoken up loud enough and often enough. Or, perhaps, it may be that the Americans have observed that many non- American scholars tend to be uninteresting because they are merely par- roting yesterday's American ideas. Technology, it seems, can now travel very fast from the centre to the periphery. Ideas seem to take longer to transplant so that by the time American ideas reach the corners of Euro- pean or Japanese universities, let alone those of the third world, they are already out-of-fashion, supplanted by newer ones. This is certainly true between disciplines; when the economists adopt methods from mathemat- ics, the mathemeticians have already moved on to something new, less bound by simple numbers; and when the political scientists adopt concepts or methods from economics, the economists have often already discarded them in favour of some new ideas and methodologies. But in asserting our own ideas, however unconventional or controver- sial they may be, we have the immense opportunity of exploiting what Professor Kenneth Boulding has called the 'invisible colleges' of the international academic community. In each special field of international relations and of international political economy there exists a network of friends and acquaintances, of colleagues with similar interests (and therefore likely to read the same newspaper stories and the same journal arti- -40- cles and books) and the same keenness to exchange ideas with one another. If we want to be heard we must make the maximum possible use of what- ever invisible colleges we, as individuals, may belong to. Otherwise we deserve to be, and to remain, 'underlings'. It is through just such meetings as this and such opportunities as I have been given by the Japan Economic Foundation to communicate some of my ideas to you and I hope to listen in turn to yours that the invisible colleges will become stronger and more influential. We cannot must not despair of educating our masters.

References Robert 0. Keohane, After Hegemony. Cooperation and Discord in the World Political System. Princeton University Press, 1984. Bruce Russett, "The mysterious case of vanishing hegemony; or, is Mark Twain really dead?" International Organization. Spring 1985. J. P. Swell, "Congenital unilateralism and the adaptation of American academics" mimeo paper to American Political Science Association. Washington, August 1986. Stephen Gill and David Law, The Global Political Economy, Ch.4 "Order, the state, hegemony and regimes. " Wheatsheaf, England, forthcoming 1987. Lars Mjoset, "The analysis of US hegemony," mimeo 1986, Oslo, Norway. (from Modern Hegemonies Compared, forthcoming.) Michel Aglietta, "Etats-Unis: perseverance dans l'etre ou renouveau de la croissance?" in Robert Boyer, Capitalismes fin de siecle. Presses Universitaires de France, Paris 1986. Giovanni Arrighi, "A crisis of hegemony," in Samir Amin et al, Dynamics of Global Crisis. Macmillan, London, 1982. Henry Nau, "Where Reaganomics works, " Foreign Policy, Winter 1984/5. Raymond Lotta, America in Decline. Banner Press, New York, 1986. Immanuel Wallerstein, The Capitalist World Economy. Cambridge University Press, 1979. , The Modern World System. Academic Press, London, 1974. Bruce Nussbaum and others (Business Week team), The Decliine of US Power.Houghton Mifflin, New York, 1980. C.K. Kindleberger, The World in Depression.Univ. of California Press, Berkeley, 1973. J. K. Galbraith, The Great Crash. Hougton, Mifflin, Boston, 1955. M. Friedman and A. Schwarz, A Monetary History of the United States, 1866-1945. Princeton University Press, 1963. Robert Gilpin, The United States and the Multilateral Corporation. Basic Books, New York, 1975. M. Olson, The Logic of Collective Goods.Harvard University Press, 1975. , The Rise and Decline of Nations. Harvard University Press, 1982. S. Krasner (ed), International Regimes, Cornell University Press, Ithaca, 1983. D. Calleo, The Imperious Economy.Harvard University Press, 1982. S. Strange and R. Tooze (eds), The International Management of Surplus Capacity. Allen and Unwin, London, 1982. -41-