Interdependence, pauz A. ~apayoanou Institutions, and the Balance of Power I Britain, Germany, and I World*War I I I Economic ties were more extensive and significant in the period before 1914 than at any time before or since, and the chief protagonists of the period, Britain and Germany, were one another’s best customers. Yet Britain and Germany pursued much different foreign policies; Germany pursued an aggressive, expansionist foreign policy and Britain responded with an ambivalent ”straddle policy” toward Germany that was a mix of balancing and conciliation. Many argue that such disparate behavior and the outbreak of World War I falsify the view held by many liberal theorists of international relations that high levels of economic interdependence are conducive to peace; realist critics also suggest that this affirms their position that the requisites of high politics dominate in international politics.’ While the First World War clearly contravenes the liberal view, I argue that the realists are also wrong. Economic interdependence had a profound effect on British and German strategies in balance-of-power politics in the period leading up to August 1914, but the two pursued much different foreign policies because of Paul A. Papayoanou is Assistant Professor of Political Science at the University of California, Sun Diego, and he completed a draft of this article while a Faculty Fellow of the University of California Institute on Global Conflict and Cooperation during the 1994-95 academic year. I thank Jack Hirshleifer, Piper Hodson-Pierson, Barbara Morris, Richard Rosecrance, Lars Skllnes, Arthur Stein, and anonymous reviewers for their valuable comments; Risa Brooks, David DLugo, Robert Pahre, Philip Roeder, Ronald Rogowski, and participants at a seminar of the Princeton University Research Program in International Security for very helpful discussions; and Amy Cressey and Hung Tran for research assistance. I also gratefully acknowledge the Committee on Research of the UCSD Academic Senate for funding archival research in Britain, and the Institute on Global Conflict and Cooperation for generous financial support. I assume full responsibility for all errors and shortcomings. 1. For the liberal view, see for example, Richard Rosecrance, The Rise of the Trading State: Commerce and Conquest in the Modern World (New York Basic Books, 1986); but see also Robert Jervis, ”The Future of World Politics: Will It Resemble the Past?” Znternational Security, Vol. 16, No. 3 (Winter 1991/92), pp. 39-73; and Stephen Van Evera, ”Primed for Peace: Europe After the Cold War,” International Security, Vol. 15, No. 3 (Winter 1990/91), pp. 7-57. For the realist view, see esp. John J. Mearsheimer, “Back to the Future: Instability in Europe After the Cold War,” International Security, Vol. 15, No. 1 (Summer 1990), pp. 5-56; and Kenneth N. Waltz, Theory of International Politics (Reading, Mass.: Addison-Wesley, 1979), chapter 7. International Security, Vol. 20, No. 4 (Spring 1996), pp. 42-76 0 1996 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology 42 Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/isec.20.4.42 by guest on 25 September 2021 Interdependence, Institutions, Balance of Power I 43 the different ways their domestic political institutions aggregated political and economic interests. I first make this argument theoretically, refining and synthesizing liberal and realist perspectives to explain great-power strategies since the late nineteenth century.’ The nature of economic ties, I argue, is a critical determinant of whether societal economic interests will support or oppose a state’s security goals and policies. However, domestic political institutions affect whether internationalist or domestic-oriented economic interests are politically salient and able to affect strategic decisions. Thus, economic ties and political institu- tions determine whether strategists have the capacity to balance against threats they perceive, and whether they might pursue expansionist goals. Moreover, I argue, these domestic mobilization processes affect the expectations that state leaders have about one another’s intentions, and this has a strong effect on the international strategic interaction process between potential allies and adver- saries. Thus, by affecting both the capacities of state leaders and others’ expec- tations, economic ties and political institutions determine the strategies great powers pursue in balance-of-power politics. The next section elucidates my theory, which is then used to explain the behaviors of Britain and Germany, the pivotal actors in European balance-of- power politics in the period leading up to August 1914. The article concludes by drawing out implications for international relations theory, the future of international politics, and policy. A Theory of Great Power Strategies Balance-of-power politics are important, but my theory goes beyond realist conceptions3and draws from liberal theory to incorporate variations in domes- 2. A longer and slightly different version of this theory with applications to the other historical cases and periods since the late nineteenth century discussed briefly in this article, can be found in Paul A. Papayoanou, ”Economic Interdependence and the Balance of Power,” and Economic Interdependence and the Balance of Power, unpublished manuscripts. Other recent interpretations of the relationship between international economic and security factors include Joanne Gowa, AIlies, Adversaries, and International Trade (Princeton: Princeton University Press, 1994); Edward D. Mans- field, Power, Trade, and War (Princeton: Princeton University Press, 1994); and Barry Buzan, ”Eco- nomic Structure and International Security: The Limits of the Liberal Case,” Infernational Organization, Vol. 38, No. 4 (Autumn 1984), pp. 597424. 3. There are many variants of realist balance-of-power theory, but all essentially argue that states tend to oppose threatening powers in the international system and that this balancing behavior is conducive to international stability as aspiring revisionist states will be prevented or deterred from achieving or pursuing their expansionist goals, or because states will be socialized to the system’s Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/isec.20.4.42 by guest on 25 September 2021 International Security 20:4 1 44 tic economic and political structures to account for strategies. Such a refinement of balance-of-power theory is necessary because state behavior is structurally determined and thus endogenous to the realist models, and so they cannot explain deviations from equilibrium-such as the emergence of threats, the failure of states to balance, and the outbreak of war in a system where balances of power are said to recur.4 To explain balancing behavior and the prospects for conflict, we must recognize that states can have varied preferences in similar strategic situations, and that there is uncertainty about what those preferences will be. My model thus presumes that some states will be status quo powers-great powers which would prefer not to see an upset to the territorial status quo- while others may have revisionist aspiration^.^ Some national security leaders of status quo powers will, for reasons of domestic politics, have the capacity to balance against threats they perceive, while others will not. The strategies that status quo powers pursue will, in turn, be signals in an uncertain world that affect whether other status quo powers will balance against threats and whether aspiring revisionist powers will risk aggression. Using this framework and logic, the theory then focuses on the impact that economic ties and political institutions have on the capacity of state strategists to mobilize against threats they perceive6 and on others' expectations, and how in turn the strategies of status quo and of aspiring revisionist powers are affe~ted.~ balancing dynamic. See Waltz, The0 y of Internationa! Politics; Edward Vose Gulick, Europe's Classical Balance of Power (New York Norton, 1955); Morton A. Kaplan, System and Process in International Politics (New York John Wdey and Sons, 1957); Hans J. Morgenthau, Politics Among Nations: The Struggle for Power and Peace, 3rd ed. (New York: Alfred A. Knopf, 1960). 4. For an argument about how realist conceptions cannot explain why threats emerge and why countries develop revisionist aspirations, see also Jack Snyder, Myths of Empire: Domestic Politics and International Ambition (Ithaca, N.Y.: Cornell University Press, 1991), pp. 11, 22. 5. On the need for making such a distinction, see also Randall L. Schweller, "Bandwagoning for Profit: Bringing the Revisionist State Back In," International Security, Vol. 19, No. 1 (Summer 1994), pp. 72-107. 6. On threat perception, see Stephen M. Walt, The Origins of Alliances (Ithaca, N.Y.: Cornell Uni- versity Press, 1987). Note that I am concerned only with the perceptions of strategists (or national security leaders). My intention is to avoid a definition of threat perceptions that would make the theory potentially tautologous and non-falsifiable. Note also that threats need not be projected toward individual status quo powers to be significant, for great powers will also be deeply concerned about threats in the geographically proximate system since an upset to the balance can quickly endanger their security. See Morgenthau, Politics Among Nations, p. 169. 7. I am using here a logic found in Robert Jervis, The Logic