With 2012 down to its last day, it's now safe to announce this year's Albies -- named in honor of noted political economist Albert O. Hirschman. The Albies are awarded to the best writing in global political economy over the past calendar year. The writing can be in a book, journal article, think tank report, blog post, whatever -- the key is that the article makes you reconsider the way the world works.
This time around the bar was rather high, as Hirschman passed away earlier this month. Still, what with the world supposedly ending this year, there was a lot of really excellent work in this area. So, in no particular order, here are the ten Albie winners:
1) Mario Draghi's September 6th press conference on ECB policy. In response to a question about whether there would be a limit to the European Central Bank's "outright monetary transactions" -- i.e. buying distressed sovereign debt in secondary markets, Draghi replied, "there is no ex ante quantitative limit to these interventions because we want this to be perceived as a fully effective backstop that removes tail risk from the euro area." And, with those words, Draghi effectively put a stop to the immediate financial crisis that was crippling the southern European economies. From a n IPE perspective, Draghi also did something surprising and interesting: he signaled that the ECB could take steps independent of what the Bundesbank wanted it to do. With this one statement, Draghi gave the eurozone area room to breathe, stabilized global financial markets, and may have well given a major assist to Barack Obama's re-election. Now that's a press conference.
2) Faisal Ahmed, "The Perils of Unearned Foreign Income: Aid, Remittances, and Government Survival." American Political Science Review, February 2012. Remittances have been the Big Thing in development circles for the past few years, particularly since these flows have been robust even in the face of the Great Recession. Ahmed's article shows that remittances are not an unalloyed good, however. Autocratic governments can use these flows as they have used foreign aid -- as a way to divert their own resources away from social programs and towards bolstering the government's coercice apparatus. Because families have thjis extra income source, their disconent against the state won't rise -- and the state will be better prepared to crack down if citizens do revolt. Remittances therefore paradoxically help authoritarian governments persist for longer. This doesn't mean that remittances are a bad thing -- but Ahmed's finding does a lovely job of mucking up some policy truisms.
3) McKinsey Global Institute, Debt and Deleveraging: Uneven Progress on the Path to Growth, January 2012. Very Serious People across the political spectrum agree that the United States desperately needs to get its debt problem under control. But as this McKinsey report demonstrates, the United States already has gotten its debt problem under control. Sure, the federal government's debt-to-GDP ratio has ballooned since the start of the Great Recession, but overall debt levels -- including households, the financial sector, and business more generally -- have shrunk quite nicely, thank you very much. Indeed, the U.S. approach of swelling government debt to absorb the slack in aggregate demand repeats the successful policies of the Scandinavian countries during their financial meltdowns in the early nineties. This -- comibined with an energy boom, the insourcing of manufacturing, and even a modicum of sane foreign economic and security policies -- augur a revival in America's economic fortunes.
4) Robert J. Gordon, "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds," NBER Working Paper No. 18315, August 2012. The doppelgänger to the McKinsey paper, Gordon makes the somewhat speculative argument that the boom times for U.S. economic growth are over. Arguing that the productivity gains from the Information Revolution are puny compared to the Second Industrial Revolution, Gordon then sketches out a future where the rate of per capita income growth collapses to pre-Industrial levels. This provoked a lot of pushback -- see Brad Plumer's roundup and Paul Krugman's recent column. And for that reason alone, Gordon deserves an Albie -- he got people to think seriously about the sources of economic growth, a curiously neglected topic in economics.
5) Artemis Capital Management, "Volatility of an Impossible Object: Risk, Fear, and Safety in Games of Perception." September 30, 2012. To put it gently, the past few years have not been kind to the financial gurus of the world. Slowly, they've begun to acknowledge that their job isn't just to deliver the high "alpha" or the "smart beta" anymore -- it's also to recognize where there's a buildup of systemic risk and general uncertainty and hedge against it. Since perception is a big driver of asset valuation in a world of uncertainty, that makes life even trickier for financial analysts. In response, this was the year that they began to embrace post-modernism as an analytical tool. This Artemis newsletter is simply the most obvious example. After you read it, you could come away with the firm conviction that the author is either onto something truly fundamental, or he's just throwing up his hands and crying "Uncle!" Either way, some enterprising Ph.D. student is gonna produce one hell of a dissertation by analyzing the baroque literature of investment newsletters. Bill Gross would be a whole chapter unto himself.
6) Daron Acemoglu and James Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, Crown Publishing. What explains why some countries prosper and some don't? When Mitt Romney credited the gap between Palestinians and Israelis as a matter of "culture," he stumbled into every social scientist's personal nightmare. The argument de l'année was Acemoglu and Robinson's observation about the power of political institutions to shape immediate economic incentives as well as long-term cultural patterns. Why Nations Fail is the popular capstone to a decade of Acemoglu and Robinson's research. It doesn't settle the argument by any means, but it's a powerful brief against those who argue that the sources of prosperity are either geographical or cultural.
7) Chrystia Freeland, Plutocrats, Penguin. As income and wealth inequality has increased both globally and in the United States, the political implications of this trend have slowly moved into the forefront of political debates. Freeland's Plutocrats is the perfect jumping off point for this debate. Freeland paints a complex portrait of the rich, demonstrating their worldview while avoiding both condescension and caricature. This is one of those rare books that actually improves upon the Atlantic cover story that kicked it off. The final third of the book in particular raises some profoundly troubling questions about the relationship between the uber-wealthy, the state and the rest of us.
8) David Barstow, "Vast Mexico Bribery Case Hushed Up After Top-Level Struggle," New York Times, April 21, 2012; Barstow and Alexandra Xanic von Bertrab, "The Bribery Aisle: How Wal-Mart Got It's Way in Mexico," New York Times, December 17, 2012. Social scientists often disdain journalists for not paying attention to macro trends and failing to understand statistics. These are valid concerns, but scholars also need to acknowledge when journalists actually generate data rather than merely report on it. In these two stories Barstow and his co-authors took a beacon and revealed the extent and methods of corruption in Mexico -- and the ways in which corrupt practices in one country can infect the culture of a multinational corporation. Outstanding reportage. This story gets bonus points for being an article about Mexicco but not about either immigration or narcotics.
9) FT Reporters, "Chinese Infighting: Secrets of a succession war," Financial Times, March 4, 2012/John Garnault, "Rotting From Within," Foreign Policy, April 16, 2012/David Barboza, "Billions in Hidden Riches for Family of Chinese Leader," New York Times, October 25, 2012 and "Family of Chinese Regulator Profits in Insurance Firm's Rise," December 30, 2012/Bloomberg News, "Heirs of Mao's Comrades Rise as New Capitalist Nobility," December 26, 2012. As China underwent its own leadership transition, the lack of a free press in that country did not prevent some crackerjack reporting on the corruption issues that plague the People's Republic. From the FT's harrowing story of how Bo Xilai used torture to amass his fortune to Garnault's examination of how corruption has ensnared the Chinese military to Barboza's and Bloomberg's explications of how political connections lead to wealth in China, western reporters did an outstanding job in 2012 of demonstrating the inner working's of China's political economy. If your newspaper or magazine gets blocked by the Great Firewall after a story, that should be taken as a sign of respect.
10) Matt Ferchen, "Whose China Model is it anyway? The contentious search for consensus." Review of International Political Economy, April 2012. This was a curious year for China-watching. On the one hand, the trend was for analysts to shift from bullish to bearish. On the other hand, some Chinese and a lot of Americans are now feeling pretty confident about the superiority of the Chinese system. But what exactly is the China Model? Ferchen does an excellent job dissecting what we're talking about when we're talking about the Beijing Consensus. He further dives into the internal Chinese debate on the existing model, revealing serious qualms about the stats quo. Ferchen shows that one of the interesting things about the "Beijing Consensus" is not its content per se, but how policymakers and pundits on both sides of the Pacific deploy the term.
Honorable Mentions: Lauren Greenfield's The Queen of Versailles; Angus Burgin, The Great Persuasion: Reinventing Free Markets since the Depression, Harvard University Press; Christopher Hayes' Twilight of the Elites; Annie Lowrey, "Dire Poverty Falls Despite Global Slump," New York Times; Peyer Doyle's letter of resignation to the IMF, June 16, 2012; and -- just under the wire - the automated Thomas Friedman Op-ed Generator.
So, to sum up: two books, to peer-reviewd journal articles, two investment reports, a passle of journalism, one draft paper, and one press conference. And yet I still feel like I nonly scratched the surface.
May 2013 be as rich a year for global political economy as this past one!!
You humble blogger has, on occasion, waxed poetic about Hirschman's accomplishments as a scholar and a writer. His primary area of expertise was in development economics, particularly in Latin America. He was a true giant in the larger study of political economy -- which is why my best-global-political-economy-of-the-year awards are named The Albies. The Social Science Research Council also named a prestigious award after Hirschman:
The Prize recognizes Albert Hirschman's pioneering role in contemporary social science and public policy as well as his life-long commitment to international economic development. Exploring theory and practice, the history of ideas - economic, social or political - and innovative approaches to fostering growth, Hirschman has seen scholarship both as a tool for social change and as an inherent value in a world in need of better understanding. He has written in ways that help social science effectively inform public affairs. His work stands as an exemplar of the necessary knowledge that the Social Science Research Council seeks to develop and the interdisciplinary and international approach in which it works.
What did Hirschman write to earn such honorifics? Well, Exit, Voice and Loyalty is one of those books that you have to read if you're earning a Ph.D. in any social science; as I've said before, that book was crucial to some of my thinking behind All Politics is Global. Beyond that book, however, Hirschman wrote must-read books on international economic power (National Power and the Structure of Foreign Trade), economic ideas (The Passions and the Interests), political rhetoric (The Rhetoric of Reaction), and the evolution of the social sciences themselves ("Paradigms as a Hindrance to Understanding").
Hirschman's ideas ere important, but I'd argue that his writing style was equaly important -- clear, lucid, vivid, never a word wasted. As a grad student, I dozed off a lot reading a necessary but abstruse journal article. One did not fall asleep reading Hirschman -- hell, he was better than any energy drink in boosting one's intellectual energies.
He will be missed -- but not forgotten.
It's now December, which means it's time to start garnering nominations for the 4th annual Albies, so named to honor of the great political economist Albert O. Hirschman.
To reiterate the criteria for what merits an Albie nomination:
I'm talking about any book, journal article, magazine piece, op-ed, or blog post published in the [last] calendar year that made you rethink how the world works in such a way that you will never be able "unthink" the argument.
This year was certainly not a boring one for the actual global political economy, which means it's a good year to write about it. So, please submit your ideas to me. And remember, this is the only year-end Top 10 list that neither Time nor the Atlantic has yet to comandeer. Here are links to my 2009, 2010, and 2011 lists for reference.
The winners will be announced, as is now tradition, on December 31st. In the meantime, readers are strongly encouraged to submit their nominations (with links if possible) in the comments.
After blogging last week about the gendered effects of a Ph.D. for foreign policy professionals, I got a reasonable query from Caitlin Fitzgerald: if getting a Ph.D. is so great, how does one get accepted into a doctoral program in political science?
This is a good question. Despite all of the warnings being proffered about the stultifying nature of graduate school and the horrible, very-bad, not-so-great quality of the academic job market, competition to get into top-tier grad schools is still quite high. So, how do you get in?
As someone who got accepted into a very competitive Ph.D. program in
Boston San Francisco - well, not in San Francisco, but nearby - no, not Santa Clara [OK, that's enough!!--ed.] and as someone who has sat in on more than his fair share of admissions committees, I can proffer some useful tips. I'm going to do this in two parts: first, what undergraduates should do, and then what post-baccalaureate types should do. I'm starting with the undergraduates because it's not too late for them it's at the college level when an individual applicant can lay the necessary groundwork for a strong application.
Before I jump into the five dos and don'ts, let me remind you of something: in good Ph.D. programs, admissions committees are looking for a reason to ding you. The problem is a surfeit, not a dearth, of qualified applicants. By the last stages of the process, admissions committees are often making accept-or-reject decisions on distinctions so minor that no one would admit them publicly (it's not that we want to do this - it's that admissions slots are scarce and looking at minutiae seems fairer than, say, a random draw). What this means is that any serious chink in your admissions armor - low GPA, low GREs, weak recommendations, etc. - gives an admissions committee a valid excuse to ding you. So if you're really interested, you have to make sure that every facet of your application is up to par.
With that out of the way, here are the Five Dos and Five Don'ts for undergraduates applying to Political Science Ph.D. programs in either international relations or comparative politics:
THE FIVE DOS:
1. Read some actual political science. This might sound obvious, but a lot of undergraduate programs in political science -- particularly in the first few years -- will have syllabi larded with weird textbooks and Foreign Affairs articles. And that's OK for undergrads -- but if you're thinking of getting a Ph.D. and you're not terribly familiar with either International Organization or the American Political Science Review, you're in for a world of hurt. Read the journals to get a sense of A) what it's like to write in political sciencese; B) not sound like an idiot when you write your application; and C) Make sure, one last time, that this is really what you want to do for the next six years.
2. Write a thesis. Ph.D. programs want to be sure that you will have the intellectual chops to do real research and real writing. The best opportunity you'll have to do that as an undergrad is your B.A. thesis. If you don't write one and apply to a Ph.D. program, that's a red flag. Why didn't you write one? If you can't handle that, how could you handle a dissertaton? So write a thesis whether it's required or not -- and make sure it's good.
3. Get comfortable with math. Even if you're aspiring to do pure political theory or qualitative work, you're going to have to take classes in methodology, game theory and econometrics in graduate school. Oh, and by the way, with the arrival of Big Data, even areas of research that used to be qualitative are becoming quantitative. The less innumerate you are, the less these courses will seem like a foreign language. At a minimum, make sure you have familiarity with intermediate-level statistics and multivariate calculus. Linear algebra is nice too.
4. Go abroad and learn a language. Experience is not weighted all that heavily in grad school applications. Overseas experience is an exception, particularly if you want to specialize in an area or region of the globe. Learning a language pertinent to that region or area will help as well. Exploit study abroad programs as a way to signal that you'll be up for the rigors of field work.
5. Get rich. Ready for some real-keeping? If you can fund your own ticket for graduate school, the admissions standards are not nearly so high. Whether you inherit family wealth, win an NSF fellowship, or finally make sure that Nigerian e-mailer comes through, having no need for fellowship support makes you a freebie to most programs. At that point, the equation changes from "is this candidate among the best?" to "is this candidate above the bar?" The latter is much easier to clear than the former.
And now.... THE FIVE DON'TS:
1. E-mail professors in Ph.D. programs at length. Your mileage may vary, but speaking personally, I'm at the point where I get so many of these emails that I ignore all of them. All. Of. Them. Why? Because professors are not stupid -- we know you're sending these out en masse, we don't know whether you really have the chops to get a degree, and because we don't make decisions like this because of e-mails. I won't deny that this tactic might work once in a blue moon, but it's been so played out that most profs' eyes glaze over a these missives.
2. Detail, at length, your plans to change the world in your personal statement. The personal statement in a doctoral admissions packet is the easiest way for a candidate to screw up -- it'll be almost as bad as your dissertation prospectus. What admissions committees are looking for are signs of emotional and intellectual maturity matched with an ambition to do first-rate research. They are not looking for "and then I realized" epiphanies about how getting a Ph.D. will allow you to change the world. Backstory matters in explaining why you're interested in doing what you're doing, but don't kid yourself -- unless you're a survivor of an ethnic cleansing, your personal narrative at 21 is just not that interesting. Side note: if you are the survivor of an ethnic cleansing, hey, go to town in your statement.
3. Put all your application eggs into one basket. Let's say you've done everything I've suggested. Let's say you've researched grad schools carefully, and have decided that, given you're research interests, the only person you can work with is Robert Bates at Harvard. Congratulations, you've gone overboard in specializing!! Apply to good programs, not just to work with one person. Individual professors move, retire, pass away, go on sabbatical, or drink too much and hit on students and make things veeeeery awkward in the aftermath. Diversify your portfolio and make sure you apply to programs with a deep bench in your area of interest.
4. Get celebrity professors to write you letters of recommendation. Letters of recommendation matter a lot to this process, and I've noticed a trend among those-savvy-beyond-their-years to make sure they ingratiate themselves with well-known professors as a way of calling attention to one's application. I get this instinct, and done well it can work -- a glowing letter from, say, Madeleine Albright or Zbigniew Brzezinski that indicates deep knowledge about you can be a game-changer. Here's the thing, though -- 99% of the recommendation letters I read from people at this level of fame are bland, impersonal boilerplate. That will hurt you. So don't bend your research interests to match a star professor -- make sure that the profs who know your area well also know you well enough to write good letters of recommendation.
5. Take on debt. Let's say you work really hard and get accepted to a top tier program, but without the fellowship support that you need because -- silly you! -- you're not rich. You night start thinking, "sure, I'll have to take on some debt, but it's a great program and therefore worth it." Wrong! First of all, it's not like you're going to be raking in the bucks as a post-grad -- even a small amount of debt can be financially debilitating. Second, not getting a fellowship is a powerful signal of lukewarm interest on the part of the school, so you'd already be starting with a strike against you. Unless you're rich, only attend traditional Ph.D. programs that offer you full tuition and a stipend.
Oh, and one bonus DON'T:
5*. Talk up your blog or Twitter feed as an example of research. It isn't research, and no one cares anyway.
Part II -- what to do if you've been out of college for a while and want to apply to get a Ph.D. -- will follow this week.
Professors -- am I missing anything? Any more advice to proffer?
With 2011 down to a few hours, it's now safe to announce the 2011 Albies -- named in honor of noted political economist Albert O. Hirschman. The Albies are awarded to the best writing in global political economy for the past calendar year. The writing can be in a book, journal article, think tank report, or blog post -- the key is that the article makes you reconsider the way the world works.
This year yielded a bumper crop of excellent IPE writing. I attribute this to the 2008 crisis and its aftereffects generating such a bounty of fascinating trends/events that even straight reportage has been interesting. Indeed, it was such a good year that, for the first time, I'm including some "honorable mentions" at the bottom.
In no particular order, here's the top 10:
1) Chrystia Freeland, "The Rise of the New Global Elite," The Atlantic, January/February 2011. A slender common thread of the Arab Spring protests, Occupy Wall Street, and the Russia protests was a perception of rising inequality, and the refusal of elites to acknowledge that there is even a problem. Before any of these movements made the front page, Freeland examined the global 1% in this essay. As much as political scientists like to talk about public ignorance of the way the world works, Freeland makes the case that the global elite suffers from a different but very dangerous perception -- that fortuna and inherited advantage had no role in their own prosperity.
2) Thomas Oatley, "The Reductionist Gamble: Open Economy Politics in the Global Economy," International Organization, April 2011. Over the past decade, the "open economy politics" paradigm has dominated the study of global political economy. There are some strengths to this kind of approach, but the law of diminishing marginal returns kicked in a long time ago (OEP has little to say about the 2008 financial crisis). Oatley's paper -- published in the leading journal -- was a powerful wake-up call to the subfield.
3) Tyler Cowen, The Great Stagnation, Dutton. Americans have taken prospertity, and the engines of prosperity, for granted. Cowen's short book suggests that, appearances to the contrary, all of the easy ways for promoting economic growth in the developed world have dried up. I would posit that Cowen contradicts himself with his innovative way of getting this argument published (first as an ebook) but this is an excellent, accessible read on the future of the U.S. economy.
4) Boston Consulting Group, "Made in America, Again," May, and Edward Luce, "America is Entering a New Age of Plenty," Financial Times, November 20. These two essays provide an interesting counter to Cowen's prognosis. BCG's projections on manufacturing, and Luce's summary on energy innovations, suggest that a decade from now -- regardless of who is president -- the United States will be a manufacturing and energy powerhouse.
5) Damien Cave, "Better Lives for Mexicans Cut Allure of Going North," New York Times, July 6, 2011. I blogged about this story when it was first published about why it was so interesting. Now, I just want the debate moderators to hold it up like John Cusack in Say Anything whenever the GOP candidates natter on about stopping illegal immigration.
6) Jacopo Ponticelli and Hans-Joachim Voth, "Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009," Centre for Economic Policy Research discussion paper no. 8513, August 2011. 2012 is going to be a year of austerity for a lot of countries. This timely paper looks at the causes of European social unrest over the 20th century, and concludes that fiscal retrenchment is the primary driver of unrest. Bear this in mind whenever you read about new austerity measures being imposed.
7) Andrew Hill, "Inside McKinsey," FT Magazine, November 25. As the GOP looks set to nominate a former consultant as its standard-bearer, the culture of management consulting is worth considering. McKinsey is to consulting as Goldman Sachs was to management consulting, and this year a scandal has rocked that firm to the core. Hill's FT story gets at the powerful corporate culture that defines McKinsey -- and the ways in which the renumeration gap between management consultants and hedge fund managers led to a breakdown in McKinsey's norms.
8) Prabhat Jha et al, "Trends in selective abortions of girls in India," The Lancet, June 4, 2011. I blogged about this article back in May. Long story short: as India has grown richey, India's educated, wealthy elite have engaged in selective gender-based abortion on a massive scale. A very sobering reminder that modernizing societies will not necessarily become more Western in their values.
One does not have to dig very deep into foreign-policy punditry to find the belief that the question of the next decade is how world order will adapt to a waxing China and a waning United States. Will China embrace, reject, or simply ignore the set of pre-existing global norms? Will the United States continue to assert its privilege in setting global norms, or will it retreat into unilateralism? Beyond the punditry, very few scholars have bothered to look systematically at how both of these countries interact with global governance norms and structures. Rosemary Foot and Andrew Walter tackle the general question of Sino-American interactions with global rules and norms in a rigorous and informative manner, discussing issues as diverse as nonproliferation and financial regulation with a degree of empirical sophistication that borders on the astonishing. Foot and Walter have produced a must-read for anyone interested in the future of global governance
10) Michael Forsythe and Henry Sanderson, "China Debts Dwarf Official Data with Too-Big-To-Finish-Alarm," Bloomberg News, December 17, 2011. This was the year that China bears came to the forefront. I'm a bit more optimistic about the communist regime's prospects than, say, Gordon Chang, but this piece of investigative reporting by Bloomberg does a fine job of demonstrating the depths of the bad debt problem that pervades China's banking sector.
Honorable mentions: Nouriel Roubini, "China's Bad Growth Bet," Project Syndicate; Henry Farrell's "contagion" blog post, The Monkey Cage, August 15, 2011; J.C. Chandor's audacous directorial debut Margin Call, and, last but not least, the Ryan Gosling International Development Tumblr.
Assistant Professor of International Political Economy
Rank of assistant professor beginning September 2012. While we are open to specialty, consideration will be given to candidates with a substantive interest in emerging market economies or Europe and a methodological interest in quantitative approaches (emphasis added).
Review of applications will begin January 3, 2012. Questions relating to this search should be emailed to IPEsearch-at-Tufts.edu
Now I know there's just a booming market for junior IPE types, so I'm sure no one reading this will be interested in a tenure-track position in the Boston area. Still, I thought I'd put it out there.
And, now that my home institution is actually creating a job, I'd like all of the tax cuts and subsidies that politicians seem so eager to proffer nowadays. That, or a dedicated parking spot.
It's mid-December, which means it's time to start garnering nominations for the 2011 Albies, in honor of the great political economist Albert O. Hirschman.
To reiterate the criteria for what merits an Albie nomination:
I'm talking about any book, journal article, magazine piece, op-ed, or blog post published in the calendar year that made you rethink how the world works in such a way that you will never be able "unthink" the argument.
I know that this was a super-boring year for those interested in the global political economy, so it's going to be tough to find good material. Still, please try -- this is, I believe, the only year-end Top 10 list that neither Time nor The Atlantic has comandeered. Here's a link to my 2010 list for reference.
The winners will be announced on December 31st. In the meantime, readers are strongly encouraged to submit their nominations (with links if possible) in the comments.
While I was obsessing about Egypt last week, I see that John Quiggin, William Winecoff and others have been having a rollicking debate about the status of American hegemony, the fungibility of military power, and Boeing/Airbus subsidies. OK, that last one is less interesting, but I strongly encourage readers to go through the comment thread to that blog post.
Essentially, Quiggin contends that:
[T]he decline of the US from its 1945 position of global pre-eminence has already happened. The US is now a fairly typical advanced/developed country, distinguished primarily by its large population.
Ergo, other large market jurisdictions, like the European Union, are equal to the U.S. in terms of relative power.
This cheesed off Winecoff and others into pointing out the myriad ways in which the U.S. power profile is a) still outsized; and b) largely shaped the current global order we live in; and c) allowed entities like the EU to focus on welfare maximization rather than security.
Dan Nexon, in a comment to Quiggin's last rejoinder, gets at one nub of the debate:
John’s pointing out, quite rightly, that military power isn’t necessarily fungible. He’s doing so in the context of economic and regulatory power, which is the most “multipolar” dimension of global power right now. His IR critics are pointing out that the US still has outsized influence across a number of domains, and that some of those domains involve international (economic) institutions. They’re both onto something.
I pretty much agree with Dan here. In the military sphere, the U.S. remains a hegemonic power. In the economic and regulatory realms, well, I wrote a whole book arguing that until recently we lived in a bipolar world, so I'll side with Quiggin on that score.
There's something missing from this debate that is worth raising, however -- a proper definition of power. For example, in his first post, Quiggin noted that "[advanced industrialized countries] might be said to have declined in relative terms. But this doesn’t seem to me to constitute 'decline' in any important sense." This is heresy to an international relations scholar, in that power is viewed as a zero-sum commodity.
Beyond that, however, it is useful to think about the power to deter change from the status quo vs, the power to compel change in the status quo. In a deterrence scenario, countries use their capabilities to ward off pressure from other actors, or from structural pressures. In a compellence scenario, a powerful government threatens to use statecraft to extract concessions from other actors, or use power to alter the rules of the global game.
Deterring pressure by others is different than applying such pressure to others. With military or economic statecraft, it is generally easier to defend than attack. Many IR scholars argue that the ability to deter is a necessary condition of the power to compel. Only after an actor has the ability to resist pressure from others will they contemplate whether they can be the actor to generate pressure. Countries possessing sufficient reservoirs of power should therefore have both greater autonomy of action and be better placed to apply pressure on other actors.
What the past few years have demonstrated is the relative decline of U.S. compellence power and the rise of other countries deterrence power. Certainly the recent uses of U.S. military force haven't yielded the expected results. In the economic realm, countries like India and Brazil can veto WTO negotiation rounds in a way that simply wasn't possible 15 years ago. Similarly, China can resist U.S. jawboning on its exchange rate policy far more than in the past.
On the other hand, neither U.S. deterrent power nor other countries' compellence power has changed all that much, even in the economic realm. The rest of the G-20 can scream as loud as they want, but quantitative easing is going to continue. China has tried to find ways to use its newly found financial muscle to force changes in the international system, to little avail. To be sure, Russia, China and others can compel countries on their immediate periphery, but even a glance at the 2008 Russian-Georgian war suggests that even modest efforts like these are expensive and messy.
So... we live in a world in which more actors have vetoes over systemic change but no actor has the ability to truly compel change. This leads to lots of talk about "G-zero worlds" and so forth.
Just to be provocative, however, I wonder if what's truly changed is the extinction of compellence power as we know it. The primary, ne plus ultra tools of compellence require a willingness to kill, jail or starve a lot of people. Recent flare-ups like Iran in 2009 and Egypt right now suggests that such actions are possible at the domestic level, but pretty damn costly; even authoritarian countries flinch at using brute force on a domestic population. Cross-border efforts are even more expensive in terms of both material and reputational costs.
This isn't the end of power, but it might be the end of one particular dimension of power. I'm not entirely convinced that this supposition is true, and am willing/eager to hear counterarguments. That said, I still hereby claim The End of Power as my title, so everyone else just back off, OK?
More seriously, am I missing anything?
Any book, journal article, magazine piece, op-ed, or blog post published in the last calendar year that made you rethink how the world works in such a way that you will never be able "unthink" the argument.
The 2008 financial crisis and its aftermath are still topic numero uno. As I told the editors of FP when they asked me for my favorite books of the past year, "If last year's crop of books was about the tick tock of what happened, this year's harvest was more about why it happened." Topic numero duo for me was the future of Sino-American relations in the global political economy. These two topics govern my list:
1) Michael Lewis, The Big Short: Inside The Doomsday Machine, Norton. By honing in on the few people who bet against the subprime mortgage boom, Lewis's book nicely demonstrates the myriad ways in which the bubble was allowed to inflate for so long -- and why the people who got it right were, to be blunt, too socially awkward to help the markets correct sooner.
2) Raghuram Rajan, Fault Lines, Princeton University Press. The best combined political economy take on the underlying domestic and international factors that contributed to the crisis.
3) John Quiggin, Zombie Economics, Princeton University Press. Quiggin ruthlessly deconstructs the ways in which market-friendly ideas devolved from rigorous theory into caricature. Free market advocates won't want to read this book, but they should.
4) Yu Yongding, "A Different Road Forward," China Daily, December 23, 2010. Anyone who thinks that it's possible to extrapolate China's recent growth trends indefinitely into the future needs to read this, like, now. Yu's brutally candid assessment of what's wrong with China's current growth model could easily be written off as the musings of a crank -- if it wasn't for the fact that the guy was a former member of the monetary policy committee of the Peoples' Bank of China, and that China Daily printed the op-ed in the first place.
5) McKinsey Global Institute, "Farewell to Cheap Capital," December 2010, and Goldman Sachs Global Economics Paper No. 204, "EM Equity in Two Decades: A Changing Landscape," September 2010 (tie). Both of these reports make a similar point -- a lot of the action in capital markets over the next two decades will be taking place in the developing world. The McKinsey report is particularly intriguing on this point: it suggests that United States will stop seeing historically low interest rates very soon, and won't see them again for at least a generation.
6) Nicholas Eberstadt, "The Demographic Future," Foreign Affairs, November/December 2010. Eberstadt's essay provides a cogent summary of the demographic future of every great power in the world, and the challenges each country -- including the United States -- faces in confronting its demographic future.
7) Pew Global Attitudes Survey responses to "economic power" question, April 2010. In their surveys, Pew asked respondents to identify "the world's leading economic power." Compare and contrast the countries where the plurality response was "The United States" versus those responding "China."
8) The Wikileaks' economics cables. The cables I've read that touch on economic policy are revealing, not because they say anything different from what one could read from open sources, but because they say the exact same thing as what one could divine from open sources. Now, there are important caveats that need to be kept in mind when interpreting these cables -- but I find this observation to be veeeeeerrrrry interesting.
9) GOP, "A Pledge To America," September 2010. When the GOP disappoints deficit hawks and Tea Party activists in 2011 -- and they will, they so, so will -- go back and look at this craptastic document to understand why. Marvel at a document that pledges to cut America's deficit while not touching Social Security, Medicare, Medicaid, defense, or raise taxes. After reading this, I stopped taking GOP economic policy pronouncements seriously.
10) Linda Jakobson and Dean Knox, "New Foreign Policy Actors in China," SIPRI Policy Paper No. 26, September 2010. This isn't just about foreign economic policy, but it provides a very useful lens into the fotreign policymaking machine of the Chinese government and the Chinese Communist Party.
I have to close with the depressing observation that there was no single peer-reviewed scholarly article in this bunch. Now, in fairness, it's very difficult to get something through the peer-review mechanism and have it still be au courant. Still, I'd be happy to hear from among the academics in the audience if there was any peer-reviewed scholarship that belongs on this list.
If David Brooks is announcing his Sydney Awards for the year, then it's time to start garnering nominations for the 2010 Albies, in honor of the great political economist Albert O. Hirschman.
To repeat and update the description from last year's nominations announcement:
I'm talking about any book, journal article, magazine piece, op-ed, or blog post published in the
20092010 calendar year that made you rethink how the world works in such a way that you will never be able "unthink" the argument.
The winners will be announced on December 31st. In the meantime, readers are strongly encouraged to submit their nominations (with links if possible) in the comments.
Spencer Ackerman doesn't think the Senate will ratify the START treaty because the GOP wants revenge on health care:
It would be a mistake to view the outcome of this vote as a function of the treaty’s merits. Look at it from the GOP’s political vantage. It’s an opportunity to deal Obama’s hippie aspiration for a nuke-free world an embarrassing setback, right after suffering a humiliating defeat on health care, the issue that fight most to their voters. Every Republican interest inclines them against voting for the bill, and the constitutional math of treaty ratification gives them the chance to give Obama a bloody nose in front of the world. If the Obama team starts arguing the merits of the bill as opposed to outlining a raw-politics strategy for passage, then the treaty is fucked. (emphasis added)
I agree that treaty ratification is not going to be easy -- but Ackerman's political acumen seems off, and his timetable is way off. As Peter Baker and Ellen Barry reported for the New York Times, START won't be going up for a vote anytime soon:
The two sides have begun preparing for a signing ceremony in Prague on April 8, timing it to mark the anniversary of Mr. Obama’s speech in the Czech capital outlining his vision for eventually ridding the world of nuclear weapons....
Mr. Obama met at the White House on Wednesday with Senators John Kerry of Massachusetts and Richard G. Lugar of Indiana, the senior Democrat and Republican on the Senate Foreign Relations Committee, to brief them on the negotiations. Mr. Kerry later said he would hold hearings between Easter and Memorial Day on the history of arms control and promised action by year’s end. “I assured the president that we strongly support his efforts and that if the final negotiations and all that follows go smoothly, we will work to ensure that the Senate can act on the treaty this year,” Mr. Kerry said.
Lugar told FP's Josh Rogin that "he intends to support the agreement and hearings could begin in May."
So, we know two things. First, by the time hearings and votes on START are taken, health care will have faded from view. Second, at least one prominent Republican senator intends to vote in favor of the treaty.
Does this mean START will sail through? Hardly. But it's also not going to fail because GOP Senators decided en masse to "give Obama a bloody nose in front of the world" because of health care.
Put me down as "cautiously optimistic" that START will be ratified. If the press reports are accurate, then opponents will have to argue that non-binding preamble language will somehow bind future U.S. presidents. Maybe hardcore ideologues can spin that kind of tale, but this is not health care -- fewer activists are going to care about an arms control treaty with a fading great power. Furthermore, if Obama's popularity has rebounded by the time the treaty comes up for a vote, some individual GOP senators will see a decided advantage to bipartisanship on foreign policy.
I see I was not the only blogger to point out the Paul Krugman = neoconservative argument -- see Ryan Avent's recent posts over at Free Exchange, which also challenge Krugman on the question of whether an appreciating yuan would actually reduce macroeconomic imbalances. It's safe to say that the neocon meme got Krugman and his supporters a wee bit snippy.
Krugman has posted a more substantive reply, however, and Avent has responded as well. They are debating across a number of issues: 1) whether the Chinese government can truly control China's consumption rate; 2) whether a revaluation would in fact lead to an improvement in U.S. exports/macroeconomic imbalances; and 3) The best way to get China to alter its status quo policies.
On the first two questions, I find myself siding with Avent on the first point (it's going to take a looong time for China's consumption rate to increase) and with Krugman on the second point (revaluation would still make a difference). Scott Summer, Michael Pettis, and Tom Oatley have all also posted thoughtful responses/critiques of Krugman that are worth checking out.
I want to focus on the third question, however -- what's the best way to pressure China into altering its position? Krugman's proposal in his op-ed was Nixon redux -- slap on a 25% import surcharge and let slip the dogs of a trade war. It was the unilateralist (and violation-of-WTO-trade-rules) aspect of Krugman's proposal that sparked the neocon snark on my part. In my opinion, the U.S. should not act in a unilateral manner on the currency issue when other countries are also seriously put out with China's behavior. I'm not saying it should be off the table, either -- but it's a policy of last resort rather than first resort. Coordinated action to isolate China -- through the G-8, G-20, and other international bodies -- seems like the next step, rather than slapping on an import surcharge.
Krugman elaborates -- a bit -- here:
Here’s how the initial phases of a confrontation would play out – this is actually Fred Bergsten’s scenario, and I think he’s right. First, the United States declares that China is a currency manipulator, and demands that China stop its massive intervention. If China refuses, the United States imposes a countervailing duty on Chinese exports, say 25 percent. The EU quickly follows suit, arguing that if it doesn’t, China’s surplus will be diverted to Europe. I don’t know what Japan does.
Suppose that China then digs in its heels, and refuses to budge. From the US-EU point of view, that’s OK! The problem is China’s surplus, not the value of the renminbi per se – and countervailing duties will do much of the job of eliminating that surplus, even if China refuses to move the exchange rate.
And precisely because the United States can get what it wants whatever China does, the odds are that China would soon give in.
Look, I know that many economists have a visceral dislike for this kind of confrontational policy. But you have to bear in mind that the really outlandish actor here is China: never before in history has a nation followed this drastic a mercantilist policy. And for those who counsel patience, arguing that China can eventually be brought around: the acute damage from China’s currency policy is happening now, while the world is still in a liquidity trap. Getting China to rethink that policy years from now, when (one can hope) advanced economies have returned to more or less full employment, is worth very little. (emphasis added)
Look, Krugman is blogging here -- I'm sure that he's thought about the political economy dimension a bit more that a single post suggests. That said, Krugman is talking exactly like the most neocon of neoconservatives was before Iraq. He evinces complete disregard for existing multilateral structures, makes casual assumptions about how allies will line up behind the United States and adversaries will simply fold, and underappreciates the policy externalities that would take place if his idea was implemented.
On the multilateralism point: as Simon Lester points out, a countervailing duty applied against all of China's imports across the board because of currency manipulation would be a flagrant violation of WTO rules. So, question to Krugman (and Bergsten): are you prepared to jettison the WTO to alter China's behavior? Because that's exactly the policy choice you're setting up in your proposal.
This leads to the next problem -- Krugman/Bergsten's assumptions about how other countries would react. First of all, I'm not sure at all that China will roll over. I agree with Krugman that China's compellence power over the United States is limited. The thing is, America's compellence power over China is also limited. It's the larger economy and the deficit country, so it does have some leverage. What Krugman is suggesting is a huge demand, however -- one that would have wrenching effects on China's domestic political economy. Expectations of future conflict between the two countries are quite high, and have escalated in the past two months. Chinese nationalism is pretty robust at the moment, and nationalists are willing to make economic sacrifices rather than suffer a perceived blow to their country's prestige. This is not a good recipe for concessions, even if China is hurt more than the United States by a trade war.
Because that's what would happen -- Beijing would immediately respond with its own retaliatory tariffs on U.S. imports. They would likely harass U.S. companies with significant amounts of FDI in China. These moves would hurt China a little, but hurt the United States more. Like Michael Pettis, I think the chance of a full-blown trade war at this point becomes pretty high.
Krugman's assumption that Europe would automatically follow suit without prior consultation seems awfully casual. As the New York Times reported today, there are a lot of European companies that are not thrilled with volatility in the value of the euro -- and what Krugman is proposing is guaranteed to increase volatility. European authorities might prioritize bolstering the EU's reputation as an actor that doesn't violate multilateral norms over the economic issues at stake (and if you think that materialist explanations always trump arguments about political prestige, well, then, the euro should never have been created in the first place). I'm not sure how keen the Europeans will be about the unilateral move Krugman is suggesting. It's far from guaranteed that the EU would even be able to speak with a single voice on the issue.
Krugman's ignorance about how Japan would react (to be fair, Japan is not the easiest read right now), and his omission to mention how the rest of the G-20 or ASEAN would respond, suggests that he really hasn't thought this all the way through. I'd like to see some contingency planning in case the rest of the world doesn't line up the way he thinks.
Finally, there's no discussion -- none -- about what the political and economic effects would be during the period of uncertainty and/or if China decided they weren't going to acquiesce. Let's keep this within the economic realm and consider the following question: what's the effect of political uncertainty on investment behavior? Consumption levels? I would posit that it would increase risk-averse behavior -- particularly if this kind of trade war roiled financial markets. Wouldn't this simply exacerbate the liquidity trap concerns that Krugman has been fretting about?
Note that much of the last paragraph was framed in the form of questions. I'm not sure my answers are correct -- but I'm really not sure that Krugman's assertions/assumptions are correct.
So I see Paul Krugman has thrown his lot in with the neoconservatives who disdain multilateral institutions and prefer bellicose unilateralism when they confront a frustrating international situation.
His op-ed today is about China's currency manipulation. ... again. After explaining that China has less leverage than is commonly understood on the foreign economic policy front (gee, where have I heard that before), he closes with the following:
In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.
Whoa there, big fella!! That's a nice but very selective reading of international economic history you have there.
It's certainly true that the dollar was overvalued back in 1971. What Krugman forgets to mention -- and see if this sounds familiar -- is that the Johnson and Nixon administrations contributed to this problem via a guns-and-butter fiscal policy. They pursued the Vietnam War, approved massive increases in social spending, and refused to raise taxes to pay for it. This macroeconomic policy created inflationary expectations and a "dollar glut." Foreign exchange markets to expect the dollar to depreciate over time. Other countries intervened to maintain the dollar's value -- not because they wanted to, but because they were complying with the Bretton Woods system of fixed exchange rates. Nixon only went off the dollar after the British Treasury came to the U.S. and wanted to convert all their dollar holdings into gold.
In other words, the United States was the rogue economic actor in 1971 -- not Japan or Germany.
So, how about acting multilaterally first before engaging in unilateral action that alienates America's friends and allies alike?
To be fair to Krugman, many of the multilateral processes appear to be stymied, as Keith Bradsher explains in this NYT front-pager:
Beijing has worked to suppress a series of I.M.F. reports since 2007 documenting how the country has substantially undervalued its currency, the renminbi, said three people with detailed knowledge of China’s actions....
Last September, Presidennt Obama, President Hu Jintao of China and other leaders of the Group of 20 industrialized and developing countries agreed in Pittsburgh that all the G-20 countries would begin sharing their economic plans by November. The goal was to coordinate their exits from stimulus programs and prevent the world from lurching from recession straight into inflation.
The G-20 leaders agreed that the I.M.F. would act as intermediary.
But two people familiar with China’s response said that the Chinese government missed the November deadline and then submitted a vague document containing mostly historical data. These people said that China feared giving ammunition to critics of its currency policies at the monetary fund and beyond. Both people asked for anonymity because of China’s attitudes about its economic policies.
That last part oabout the G-20 process is particularly disturbing, given that this was supposed to be the venue through which macroeconomic imbalances were supposed to be addressed. So maybe Krugman is right and unilateral is the way to go?
I don't think so. The big difference between the end of the Bretton Woods era and the current Bretton Woods II situation is the distribution of interests. In 1971, everyone was opposed to a continuation of U.S. policies. This time around, there appears to be a growing consensus that China is the rogue economic actor.
If Krugman gets to repeat himself, then so do I:
[T]he United States is not the country that's hurt the most by this tactic. It's the rest of the world -- particularly Europe and the Pacific Rim -- that are getting royally screwed by China's policy. These countries are seeing their currencies appreciating against both the dollar and the renminbi, which means their products are less competitive in the U.S. market compared to domestic production and Chinese exports.
So why should the U.S. act unilaterally? Why not activate an international regime that does not include China but does include a lot of other actors hurt by China's currency policy?
Am I missing anything?
MIKE CLARKE/AFP/Getty Images
As the end of the year approaches, it's time to look back and
master the fine art of holiday letters think about "best of 2009" lists. And, to be sure, this past year was an eventful one for the global political economy. Trying to make sense of the past twelve months is a tricky business, even in a world of real-time instanalysis. When intelligent zombies Salma Hayek-worshippers future historians try to make sense of what happened and why, what can we say are the five things that are worth reading?
Unlike Brooks, I'm not limiting myself to magazine articles. I'm talking about any book, journal article, magazine piece, op-ed, or blog post published in the 2009 calendar year that made you rethink how the world works in such a way that you will never be able "unthink" the argument.
The Albies will be announced at the end of this week, and I already have a pretty good idea of some of the winners. At present, not all choices are fixed or frozen, however. So consider this post an opportunity, and provide your suggestions (with links) in the comments.
Over at Politico, Eamon Javers notes an odd trend in the Drudge Report:
On Tuesday, Matt Drudge ran a headline about the weakening U.S. dollar on his website, Drudgereport.com. In and of itself, that would be unremarkable, except that it was the 18th time Drudge had posted a link to a story about the weak dollar this month.
And October was only 20 days old.
Clearly, Matt Drudge has developed a fascination with the declining U.S. dollar.
“He’s fixated on it,” said Tom Rosenstiel, director of the Pew Research Center’s Project for Excellence in Journalism. “There’s no question that Drudge can alter what people are paying attention to.”
Market watchers say it’s unlikely that Drudge is actually moving the currency markets with his relentless attention.
“I don’t think that anyone who seriously trades currencies reads The Drudge Report before making important buy or sell decisions,” said Chris Roush, a professor of business journalism at the University of North Carolina at Chapel Hill. (emphasis added... because that's a priceless quote)
Drudge isn't the only one obsessed about the dollar. Last week, James Pethokoukis blogged the following for Reuters:
The aftershocks of the global financial crisis may now be propelling the dollar back to the political forefront. The greenback’s continuing slide makes it a handy metric that neatly encapsulates America’s current economic troubles and possible long-term decline. House Republicans for instance, have been using the weaker dollar as a weapon in their attacks on the Bernanke-led Federal Reserve.
For more evidence of the dollar’s return to political salience, look no further than the Facebook page of Sarah Palin. The 2008 GOP vice presidential nominee — and possible 2012 presidential candidate — has shown a knack for identifying hot-button political issues, such as the purported “death panels” she claims to have found in Democratic healthcare reform plans. In a recent Facebook posting, Palin expressed deep concern over the dollar’s “continued viability as an international reserve currency” in light of huge U.S. budget deficits.
She might be onto something here, politically and economically. A recent Rasmussen poll, for instance, found that 88 percent of Americans say the dollar should remain the dominant global currency. Now, the average voter may not fully understand the subtleties of international finance nor appreciate exactly how a dominant dollar has benefited the U.S economy. But they sure think a weaker dollar is a sign of a weaker America.
The dollar's slide in value has been predictable, as the need for a financial safe haven has abated. By and large, a depreciating dollar helps the U.S. trade balance (though it would help much more if the Chinese renminbi got in on the appreciation).
Even the Chinese, who have spoken like they want an alternative to the dollar as a reserve currency, are in point of fact not doing much to alter the status quo. Why? To paraphrase Winston Churchill, the dollar is a lousy, rotten reserve currency - until one contemplates the alternatives.
Because all of the alternatives have serious problems. The euro, the only truly viable substitute for the dollar, is not located in the region responsible for the largest surge of growth. It would be unlikely for the ASEAN +3 countries to agree to switch from the dollar to a new currency over which regional actors have no influence (the Europeans wouldn't be thrilled either, as it would lead to an even greater appreciation of the currency). Oh, and the European Union has no consolidated sovereign debt market. The euro is worth watching, but it's not going to replace the dollar anytime soon.
The other alternatives are even less attractive. Most other national currencies beyond the euro - the yen, pound, Swiss franc, Australian dollar - are based in markets too small to sustain the inflows that would come from reserve currency status. The renminbi remains inconvertible. A return to the gold standard in this day and age would be infeasible - the liquidity constraints and vagaries of supply would be too powerful. There's the using-the-Special-Drawing-Right-as-a-template-for-a-super-sovereign currency idea, but this is an implausible solution. As it currently stands, the SDR is not a currency so much as a unit of account. Even after the recent IMF authorizations, there are less than $400 billion SDR-denominated assets in the world, which is far too small for a proper reserve currency.
So, what's really going on here with the dollar obsession? I suspect that with the Dow Jones going back over 10,000, Republicans are looking for some other Very Simple Metric that shows Obama Stinks. The dollar looks like it's going to be declining for a while, so why not that? Never mind that the dollar was even weaker during the George W. Bush era -- they want people to focus on the here and now.
The thing is, I'm not sure this gambit is going to work. People who already think Obama is a socialist will go for it, sure, but that's only rallying the base. I'm not sure how much fence-sitters care about a strong dollar, however. If anything, populist movements tend to favor a debasing of the currency rather than a strengthening of it.
Still, I'm just a political scientist -- I'm sure that, "theories on political behavior are best left to CNN, pollsters, pundits, historians, candidates, political parties, and the voters."
So, have at it, readers! Will the falling dollar be a source of populist outrage if Drudge links to it enough?
Your humble blogger has a rather long essay in the Fall 2009 issue of International Security. What's a lowly IPE scholar doing publishing in a high and mighty security journal? Assessing whether China's massive holdings of dollar-denominated assets is a big deal or not. The title may or may not give away my argument: "Bad Debts: Assessing China's Financial Influence in Great Power Politics."
Here's the abstract:
Commentators and policymakers have articulated growing concerns about U.S. dependence on China and other authoritarian capitalist states as a source of credit to fund the United States' trade and budget deficits. What are the security implications of China's creditor status? If Beijing or another sovereign creditor were to flex its financial muscles, would Washington buckle? The answer can be drawn from the existing literature on economic statecraft. An appraisal of the ability of creditor states to convert their financial power into political power suggests that the power of credit has been moderately exaggerated in policy circles. To use the argot of security studies, China's financial power increases its deterrent capabilities, but it has little effect on its compellence capabilities. China can use its financial power to resist U.S. entreaties, but it cannot coerce the United States into changing its policies. Financial power works best when a concert of creditors (or debtors) can be maintained. Two case studies—the contestation over regulating sovereign wealth funds and the protection of Chinese financial investments in the United States—demonstrate the constraints on China's financial power.
Read it and weep.
Back in the spring, I hinted that I would be willing to produce a top ten list of must-read books on the international political economy/global political economy (IPE or GPE for those in the know), provided there was sufficient demand.
Judging by the e-mail response, the demand is robust and quite persistent. So I've decided... to postpone that list for another month or two.
Because you're not ready yet.
Let's face it, if you have read this far in the post, it means you're either:
This is great. The thing is, most graduate programs in political economy don't give you that much historical background before throwing the cutting-edge theory and methodology at you. This year I was lunching with some Ph.D. students at one of the top IPE schools in the country, and the students (and some of the professors) made it pretty clear that they didn't know all that much about the topic beyond the tricks of the trade - formal modeling, econometric techniques, etc.
If you're expecting me to go off on a rant here about the uselessness of these tools, well, you're going to be sadly disappointed. There are some pretty good reasons to learn these techniques - among other things, they'll help you to separate the wheat from the chaff when it comes to what blogs, pundits and public intellectuals are saying about the global economy.
That said, the opportunity cost can be significant - a failure to learn anything about global economic history beyond the stylized facts contained in the most-cited articles. This would be a weird collection of scattered knowledge, ranging from the 1860 Cobden-Chevalier Treaty to the 1934 Reciprocal Trade Agreements Act to the birth of the Washington Consensus.
Soooo..... before you are ready to ready the ten books in IPE that you have to read, you should first read these ten books on global economic history. I'm leaving a lot out here (North and Thomas' The Rise of the Western World; Karl Polanyi's The Great Transformation; anything and everything by William McNeill, Joel Mokyr, David Landes, Alfred D. Chandler, Jr., Joseph Needham; some things by Niall Ferguson, etc.). That's partly because I've slanted this list towards more recent scholarship, and partly because while these books are excellent economic histories, they don't focus as much on the international dimension.
[There are some other newly-released books, such as Liaquat Ahamed's Lords of Finance or Justin Fox's The Myth of the Rational Market, that might very well belong on this list. I'm still in the middle of reading them, however, so the jury is still out.]
Once you imbibe the (sometimes contradictory) information contained in these books, you can look at what the stylized facts contained in IPE books with a much more astringent perspective. It's not a coincidence that the foundational IPE texts are by the twentieth century's greatest economic historians - Eli Heckscher, Albert Hirschman, Charles Kindleberger, and Jacob Viner. Trust me - you will feel much the wiser for it.
The following would be my preferred order of how to read them, but it's hardly the only way to do it:
1. Gregory Clark, A Farewell to Alms: A Brief Economic History of the World (2007). I've already tagged this book as an interesting read. If nothing else, the first chapter of this book - "The Sixteen-Page Economic History of the World" - actually matches the audacity of the title. As I said, I don't completely buy Clark's explanation of Malthus + genetics = Industrial Revolution in Great Britain. His attempt to explain away the irrelevance of institutions doesn't hold up to scrutiny. Still, I will say I better appreciated the heyday of mercantilism after reading Clark.
2. Nathan Rosenberg and L.E. Birdzell, Jr., How the West Grew Rich (1986). Perfect when paired with Clark, because Rosenberg and Birdzell present the classical argument for why Western Europe was the birthplace of the Industrial Revolution.
3. Jared Diamond, Guns, Germs, and Steel (1997). The third leg in the triad of "why did Europe dominate the globe?" explanations. If Clark focuses on genetics/culture, and Rosenberg and Birdzell focus on institutions, Diamond proffers a geographical determinism. Simply put, he thinks the temperate climate of Eurasia was bound to produce the most sophisticated societies with the most advanced animals, germs, and technologies. Diamond's argument complements rather substitutes for the institutions and culture arguments. If nothing else, it is impossible to read this book and ever buy the ending to War of the Worlds.
4. John Nye, War, Wine and Taxes (2007). David Ricardo's classic example of comparative advantage was English wool for Portuguese wine. Nye explodes the "natural" aspect of this trade, demonstrating how high tariffs against French wine proved a boon to both the Portuguese and English beer distillers. Nye stretches his argument too far at times, but the interrelationship between war, protectionism, and statebuilding is pretty damn fascinating.
5. Douglas Irwin, Against the Tide: An Intellectual History of Free Trade (1996). Irwin's book is more a history of economic thought than economic history, but nevertheless tells a remarkable story: how did the idea of free trade knock off mercantilism, protectionism, strategic trade theory, and other doctrines?
6. Kevin O'Rourke and Jeffrey Williamson, Globalization and History (1999). A lucid, detailed and fascinating study of how the nineteenth century of globalization went down. When anyone argues that the current (fast fading?) era of globalization is historically unique, take the hardcover version of this book and whack them on the head with it. Special bonus book: people who liked this should go on to read Power and Plenty by Kevin O'Rourke and Ron Findlay).
7. Jeffry Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century (2006). This book is to the twentieth centiury as Williamson and O'Rourke's book is to the nineteenth - except it's written for a wider audience, so it's a more accessible read. Accessible doesn't mean simple, however - this book is chock full of interesting arguments, cases, and counterarguments.
8. Barry Eichengreen, Globalizing Capital: A History of the International Monetary System, second edition (2008). A more narrow work than Frieden's, Eichengreen's book is the starting point for understanding the classical gold standard, the Bretton Woods regime, and
whatever the hell system we have now the Bretton Woods II regime.
9. Daniel Yergin and Joseph Stanislaw, The Commanding Heights (1997). Yergin and Stanislaw tell a cheerleader's tale of how the Washington Consensus displaced the old quasi-Keynesian, quasi-socialist economic order that had its apogee and downfall in the 1970s. What's particularly interesting is their argument that what mattered was the content and spread of the ideas themselves, and not some coercive power, that led to the re-embrace of markets.
10. Paul Blustein, The Chastening (2001). Blustein, a reporter for the Washington Post, tells the you-are-there version of the Asian financial crisis and the reaction from the U.S. Treasury Department. If you want to know why Pacific Rim economies started hoarding foreign exchange reserves beginning in 1999, read this book.
OK, readers, which books would you recommend?
There's a lovely passage in John Le Carré's The Secret Pilgrim in which George Smiley explains why governments don't simply rely on open source information instead of spending gazillions on their own intelligence operations: "governments, like anyone else, trust what they pay for, and are suspicious of what they don't."
Oddly enough, in studying the global political economy, the sentiment often works in reverse in the academy. Scholars, understandably, tend to prefer open source research while looking askance at private sector work that requires $$$ to unlock.
I'm genuinely on the fence about this kind of question. In writing about sovereign wealth funds, for example, I found the private sector stuff far superior on the empirics to the open source research. The private sector stuff is also usually published before academics enter the breach (a good rule of thumb for aspiring IPE types -- if your literature review consists mostly of corporate research, then you are ahead of the academic curve on a new issue area). On the other hand, the private sector work often lacked the analytical bite of scholarly work. For some of it, I could not escape the sense that someone was trying to sell me something.
I raise this conundrum because Martin Wolf's latest column is essentially a precis of a Goldman Sachs report that requires cashy money to read. Wolf's summary:
The paper points to four salient features of the world economy during this decade: a huge increase in global current account imbalances (with, in particular, the emergence of huge surpluses in emerging economies); a global decline in nominal and real yields on all forms of debt; an increase in global returns on physical capital; and an increase in the “equity risk premium” – the gap between the earnings yield on equities and the real yield on bonds. I would add to this list the strong downward pressure on the dollar prices of many manufactured goods.
The paper argues that the standard “global savings glut” hypothesis helps explain the first two facts. Indeed, it notes that a popular alternative – a too loose monetary policy – fails to explain persistently low long-term real rates. But, it adds, this fails to explain the third and fourth (or my fifth) features.
The paper argues that a massive increase in the effective global labour supply and the extreme risk aversion of the emerging world’s new creditors explains the third and fourth feature. As the paper notes, “the accumulation of net overseas assets has been entirely accounted for by public sector acquisitions ... and has been principally channelled into reserves”. Asian emerging economies – China, above all – have dominated such flows....
The authors conclude that the low bond yields caused by newly emerging savings gluts drove the crazy lending whose results we now see. With better regulation, the mess would have been smaller, as the International Monetary Fund rightly argues in its recent World Economic Outlook. But someone had to borrow this money. If it had not been households, who would have done so – governments, so running larger fiscal deficits, or corporations already flush with profits? This is as much a macroeconomic story as one of folly, greed and mis-regulation.
I'm pretty sympathetic to this argument, but I can't fully embrace it unless I can read the friggin' paper.
Question to readers: compared to academic work, how reliable is private sector research?
FP readers have no doubt discerned that your humble blogger's #1 topic of interest for 2009 has been the relative rise of China, the relative decline of the United States and the effects of these power shifts on the global political economy.
That said, an emerging subtheme will be breathlessly hyped reporting that melodramatically exaggerates either shifts in China's power or shifts in Chinese preferences.
For exhibit A, I give you the Financial Times Jamil Anderlini and Javier Blas , who report, "China reveals big rise in gold reserves." Let's go to the lede:
China has quietly almost doubled its gold reserves to become the world’s fifth-biggest holder of the precious metal, it emerged on Friday, in a move that signals the revival of bullion after years of fading importance.
Gold rose to a three-week high of more than $910 an ounce after Hu Xiaolian, head of the secretive State Administration of Foreign Exchange, which manages the country’s $1,954bn in foreign exchange reserves, revealed China had 1,054 tonnes of gold, up from 600 tonnes in 2003.
The news could spark interest in gold among other central banks. “When the largest holder of foreign exchange reserves discloses an increase in gold holdings, other countries may decide to think more carefully about underweight gold positions,” said John Reade, a precious metals strategist at UBS.
The increase in China’s gold reserves has come primarily from domestic production and refining. However, the news raises questions about the future of Beijing’s foreign reserves policy.
Ooooh.... this could be a Very Big Deal!! Gold could supplant the dollar!! Hide the children in the basement!!
Well, let's crunch the numbers first. Unless
MS Excel's my math is way off, China's gold reserves are now roughly worth $30 billion. Which means they constitute less than two percent of China's total reserve holdings. Furthermore, China's doubling of its gold reserves in the past five years actually means that Beijing has diversified away from gold, since the total value of China's foreign exchange reserves has increased tenfold during the same period of time.
No wonder, therefore, that buried deep down into this story you see the following passage:
Paul Atherley, Beijing-based managing director of Leyshon Resources, said that even after the latest purchases China had a very small percentage of its reserves in gold, far below the US or other developed countries.
“Those [gold] holdings are still too low in terms of the size of its economy and the growing significance of its currency,” he said.
China's power is undoubtedly increasing. Not every action by Beijing, however, is indicative of attempts to alter the current global political economy.
This week in non-Foreign Policy publications I take a shiv to both American academics and American policymakers.
On the academic side, my latest essay in The National Interest online explains why the traits that make one a good international relations scholar are not-so-good traits for a good international relations practitioner:
To borrow from Isaiah Berlin, academic scholars of international relations are rewarded for being hedgehogs—i.e., knowing one big thing. Scholarship is thought to be “interesting” when an academic generates a really big and provocative idea that challenges conventional understandings of big questions about international relations. The incentive structure of the academy also rewards the academic for repeating and rewriting their big idea as often as possible. Are these big ideas right? That’s almost beside the point. As long as their progenitors are alive, ideas never die in international-relations theory (when they do die, someone will eventually dust it off and repackage the idea under their name).
On the other hand, today's policymakers ain't what they used to be -- a point I make in a commentary for Marketplace:
The dirty little secret inside the Beltway is that international economics either scares or bores America's foreign policy community. Although foreign affairs analysts understand on some level that economics is important, they see it as distinct from geopolitics. As a result, very few of them have the necessary experience or training to talk about international economic matters.
It was not always this way. During the Cold War, some of America's greatest foreign policy minds -- Dean Acheson, Walt Rostow, George Schultz or James Baker -- had substantive backgrounds in economics, finance or business. This allowed them to navigate the waters between high politics and high finance with a minimum of fuss.
[So, to sum up your mood this week: America's foreign policy community stinks!!--ed. I don't think that highly of you, either. Actually, it's worse than that -- after reading this Jacob T. Levy post, I'm not entirely convinced that the academic side of IR should necessarily strive for policy relevance.]
A few months ago Steve Walt provided a useful guide for how IR theory can provide insights into Valentine's Day. In light of tonight being the first night of Passover, this post reverses the question -- what can this holiday teach us about international relations?
This question is impossible to avoid for someone who attends a Seder and thinks about international relations. The essence of the seder is to answer the Four Questions -- i.e., to tell the story of how the Jews escaped from enslavement in Egypt. And while international relations scholars tend to be more fond of using ancient Greek history to inform their theories, the Passover story reveals at least four relevant lessons about politics:
1) Minority rights in an autocratic regime are a fragile thing. As the story begins, the Jews are treated well in Egypt, what with Joseph having been a successful prime minister and all. Eventually, however, a new Pharaoh emerges, and then there's trouble:
[T]here arose a new king over Egypt who feared the Jews because they were different. And he said to his people, "Look at how rich and how powerful are these children of Israel. If war comes, they may join themselves to our enemies and fight against us."
Autocratic leaders can ignore institutional restrictions, and are more likely to exploit ethnic tensions if they perceive a minority group as increasing in power and influence.
2) Sanctions against an autocratic regime will rarely yield significant concessions. To get the Pharaoh to let the Jews go, God imposes an escalating series of sanctions against Egypt. These sanctions crippled Egyptian agriculture, health, sanitation and, er, sunlight, inflicting great suffering against the Egyptian people. Not until the first-born male children are killed, however, does Pharaoh relent for a sufficiently long time for the Egyptians to make their escape. Not coincidentally, that plague is the only one to truly hurt the autocrat personally, as his son was killed in the plague as well. Compellence strategies would seem to have a greater chance of success if they target autocratic elites.
3) God was not that good at bargaining. For each of the ten plagues, the following pattern recurs:
Pharaoh does this nine -- count 'em, nine times -- before God resorts to the grisly tenth plague. No wonder the Egyptian leader kept reneging -- if anything, the Pharaoh's resolve should have increased over time, because he discovered that cheap talk could get God to stop what he was doing.*
4) America's idiotic sugar quotas are particularly bad for the Jews. During Passover, Jews are not supposed to eat anything that contains yeast, rice, millet, corn, legumes, wheat, rye, oats, barley, and spelt (quinoa is apparently kosher).
All well and good, except that because of America's prohibitively high barriers to most sugar imports, a lot of food manufacturers use corn sweeteners -- i.e., high fructose corn syrup -- as a substitute for sugar. Which means that for observant Jews, an entire category of goods that in other countries would be Kashrut is off the edible list for the next eight days.
*Yes, yes, God was the one who hardens Pharaoh's heart, but that just makes the story sound like a seven-year old boy playing both sides of a checkers game.
For a book-length treatment of how to think about the Old Testament from a strategic perspective, I warmly recommend Steven Brams' Biblical Games: Game Theory and the Hebrew Bible.
William Thomas Cain/Getty Images
A surprising number of people are curious to know my thoughts about the political implications of the global financial crisis -- a sure sign that Martin Wolf, Niall Ferguson, and Nouriel Roubini and about 50 other people on the geopolitics "A list" are just too damn busy.
Until recently, I had been busy thinking furiously about how the crisis affected skirt lengths, so only know am I trying to look at The Big Picture. Which, of course, means I'm starting out by reading what other people are writing.
Quentin Peel provides a nice overview in the Financial Times of the emerging conventional wisdom -- power shifting to the East, yadda, yadda yadda. And in The Washington Quarterly, Matthew Burrows and Jennifer Harris update the National Intelligence Council's Global Trends 2025 report to incorporate the effects of the crisis (they should know how to do that, since Burrows was the principal drafter of the original report).
Here's where I keep bumping my head. I by-and-large agree that a long-term implication of the crisis is that America's relative market power should shrink vis-a-vis China and India. The thing is, an awful lot of the short-term crisis steps are not moving in that direction. The United States is trying to boost its consumption spending. China appears to be boosting pursuing fiscal expansion as well, except a closer look at what they are doing shows that they're doubling down on an investment strategy that increases their export dependence. Furthermore, the head of China's central bank doesn't think that Chinese consumption is going to rise anytime soon, because Confucian cultures value, "thrift, self-discipline, zhong yong or Middle Ground (low-key), and anti-extravagancy."
After a certain point, short-term trends can congeal into long-term trajectories. So, my question to readers: will the short-term moves actually throw off long-term projections about power trends?
In addition to reforming our international financial institutions for the new challenges of globalisation we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity. We support discussion on such a charter for sustainable economic activity with a view to further discussion at our next meeting. We take note of the work started in other fora in this regard and look forward to further discussion of this charter for sustainable economic activity.
The final G-20 communique -- get it while it's hot! -- contains the following strong statement: "We will not repeat the historic mistakes of protectionism of previous eras."
This is likely true, though one should never underestimate the ability of governments to devise new and unforseen ways to commit new mistakes about protectionism in the current era.*
How could that happen? Check out my latest column in The National Interest online to see how a world of considerably less trade is possible, even within the confines of the World Trade Organization.
The essay is a thought experiment -- I'd put my money on it not happening. But I can't completely dismiss this scenario out of hand.
* Indeed, The FT's Alan Beattie and Jean Eaglesham have the best single sentence on this point of the G-20 statement: "The commitments on protectionism in the G20 communiqué, although longer than their equivalents after November’s Group of 20 meeting, are, if anything, shorter on concrete promises."
Admittedly, the London summit will not accomplish much, but if the draft communique is any guide, some modestly useful steps were taken (expanding the membership of the
Financial Stability Forum Financial Stability Board, expanding IMF lending capabilities). On the margins of the G-20, genuine progress appears to have been made on an arms control treaty between the U.S. and Russia.
Brad DeLong is exaggerating when he predicts, "the best episode of international policy coordination since Bretton Woods itself" I think the Plaza Accord would win that award. But, lest one get too discouraged, just read Marc's posts here and here.
And yes, the title of this post refers to this scene.
Your humble blogger has learned that, in an amazing reversal of fortune, the leaders of the G-20 have heeded President Obama's call to embrace a "responsiblity to co-ordinate our action and find our common ground." The result will be a communique that actually addresses the current crisis on concrete terms.
Recognizing the need for a "grand bargain," French president Nicolas Sarkozy and Angela Merkel pledged to offer a combined $400 billion in fiscal stimulus in return for a United States agreement to allow for enhanced regulation of large financial institutions. China agreed to match U.S. and European commitments to the International Monetary Fund, in return for a doubling of its voting quota within the Fund. Furthermore, all parties agreed on their joint responsibility in unwinding the macroeconomic imbalances that contributed to the current crisis, thereby pleasing Martin Wolf to no end.
The G-20 leaders summit will have an immediate follow-up of a meeting of the G-20 trade negotiators, with the stated intent of completing the Doha round before the end of the year. The Obama administration, in line with attempts to reduce the budget deficit, have taken the first concrete step, pledging to slash agricultural subsidies by more than 80% over the next four years.
In related news, France and the United Kingdom agreed to relinquish their Security Council seats in return for an "EU" seat, paving the way for Japan, India and Brazil to join as permanent members, creating a new "P-7" in the Security Council.
These breakthroughs were achieved on the same day that a mysterious chemical attack was unleashed in Washington DC that rendered Bill O'Reilly, Keith Olbermann, Glenn Beck, Chris Matthews, Sean Hannity, James Carville, Paul Begala and Bill Bennett permanently and irrevocably mute.
France will walk away from this week's G20 summit if its demands for stricter financial regulation are not met, the finance minister has told the BBC.
Christine Lagarde told HardTalk that President Nicolas Sarkozy would not sign any agreement if he felt "the deliverables are not there".
This is yet another example of France's unsurpassed superiority in world politics at doing things that make the global press pay attention to France.
One could argue that the United States should concentrate its energies on actual policy coordination. Any great power worth its salt, however, should be able to do the policy coordination and practice diva bargaining tactics.
I therefore propose that President Obama add Miss Britney Spears to the U.S. negotiating team. Let France try to make its voice heard in that media maelstrom.
Other proposals to counter France's bargaining tactics are warmly welcomed in the comments.
UPDATE: To be fair to Sarkozy, he is not the only Frenchmen who is grandstanding at the moment.
Bryan Bedder/Getty Images
My latest column for Newsweek International is now online, and points out the hazards of a failed G-20 summit. The closing:
As World Bank president Bob Zoellick recently observed, the promotion of the G20 to the global stage is an accident of history. The group had a harmless existence for close to a decade. When the crisis hit, it was the only forum around that brought together the key players in global finance.
The G20 gets a mulligan for last year's hastily arranged summit. A failure to act this time around will be far more damaging. In the absence of global cooperation, countries will go it alone, which means a ratcheting up of financial, trade and fiscal protectionism. And today's global economy already has too much in common with the 1930s.
Perusing the draft communique printed in the FT, I'd describe it as "a failure to act" already, but let's be charitable and see what happens in London.
Meanwhile, Heather Hurlburt and I discuss all things G-20 in our latest bloggingheads diavlog. We also share our fear of "impact" as a verb, and, oh, yes, I propose burning Heather at the stake. All in all, a lively chat.
Susan Strange, the godmother of international political economy, wrote a book that is suddenly very relevant to thinking about today's international monetary system. In Sterling and British Policy, Strange talked about different types of international currency. Top currencies, for example, are forms of international money where the economic incentive to hold them is pretty overwhelming. Negotiated currencies, on the other hand, are forms of international money where there the economic incentive is more muted, but political imperatives lead to an agreement on a particular form of currency as the reserve to hold.
Why am I bringing this up? Remember, like 48 hours ago, when I said that this news item warranted watching?
Well, this Financial Times story by Jamil Anderlini drops the other shoe:
China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.
In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.
Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.
“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC....
China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars, and this is unlikely to change in the near future.
Here's a link to the actual paper, which is not long.
That last paragraph is important -- what China is proposing is not going to happen anytime soon. Indeed, looking at the actual proposal, I'm not convinced that Beijing's idea is even doable (a show of hands -- who's comfortable with the IMF as the world's central bank? Anyone?).
With China and Russia both proposing some sort of change in the international monetary system, we're about to some veeery interesting economic negotiations. There are other important players -- the EU, UK, Japan, Brazil, the Gulf economies, etc. And their incentives to switch away from the dollar are more cross-cutting. For example, while the EU would probably love to switch to a system that keeps the euro from appreciating too much, I suspect they will be loathe to reallocate the IMF voting quotas that China would demand in any switch to a new system. Both Japan and the Gulf economies have security considerations that make them less eager to change.
If this does happen, however, the United States will suffer a serious loss of standing and, oh yes, a much harder budget constraint. And whatever happens, it would be difficult to call the dollar a top currency anymore. I think we have clearly crossed some threshhold where the dollar is now a negotiated currency -- and some of the negotiating partners are pretty hostile to U.S. hegemony.
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.