MARCH 21, 2012:
Koehane: he treats post war settlements (“imbedded liberalism”), as more than a
domestic bargaining- he is interested in consequences of the changes in the
international economy. He is arguing about how things began to change in the late
1960s and early 1970s. He is arguing that there is a tension built into post-war
settlements, a tension which comes to be exposed in the late 1960s and early 1970s.
Imbedded liberalism a combination in domestic intervention in the economy, in the
form of some sort of welfare regime, and second, imbedded liberalism also includes
a particular type of foreign economic policy. If they adopt a welfare regime, they
develop a laissez-faire attitude to trade.
Koehane argues that there is tension between domestic intervention and laissez fair
internationally. The potential contradiction is papered over in the heyday of
European economic reconstruction (from the 1950s to the 1970s), and it is
contained because this is a period of relatively easy economic growth in European
From the 1970s on, the tension is exposed. The question for Koehane is how states
will respond to this change in economic conjuncture:
In the late 1960s and early 1970s, imbedded liberalism was underwritten by
American economic and military hegemony, but after this period it enters a period
of decline. American support for economic reconstruction in European and their
support for international economic institutions also beings to decline.
By the mid-1970s, newly industrializing economies in the peripheries are beginning
to offer competition to European economies in the international trading system, so
America is beginning to lose its comparative competitive advantage.
The cost of raw materials begins to increase dramatically in the early 1970s (in
particular, the production of oil due to the cartelization of oil supply in the Middle
Low growth and relatively high inflation begins to characterize European
economies, and during the easy growth period there was low unemployment, high
growth, and low inflation. They then begin to go through stagflation. How well will
states and domestic political economies respond to the new conjuncture and this
He highlights the importance of the size of the ratio of domestic activity to world
activity. There are small economies and large economies. It is the variable of size
that he uses to account for countries responding differently to changes in the
He talks about Type A- political economies lie Britain and France, which are
relatively large, and Type B-political economies, such as Austria and Sweden, which
are relatively small economies. Given the economic problems, how will type A
states respond and how will type B states respond? He argues that Type A states
will respond via the introduction of protectionist measures in international trade-
this shows that imbedded liberalism is fragile.
Why would size matter? The larger your domestic economy is, the less likely you are
to depend on international trade to maintain a certain standard of living. It is to
imply that larger states might be able to afford protection in ways that smaller
states cannot. It also suggests that large states have less of an incentive to support
international institutions put in place to encourage states to maintain a commitment
to economic openness. Type B states (Austria, Sweden) with small economies are much more likely to try to maintain a commitment to international openness. They
are relatively small, so trade is very important to their welfare and well-being.
These are also economies that are relatively efficient in comparative terms. If these
economies are open and expose themselves to trade, they have to be able to
maintain international economic competitiveness. You have to be efficient enough
to compete successfully, so this efficiency that is needed has consequence. Contact
with the international economy encourages countries to regulate wage labour,
because wages that are too high/low threaten economic competitiveness. That is
why you see fairly fully developed welfare regimes (Sweden is the classic case).
Voluntary wage restraint is a response to incentives created by exposure to
Koehane wrote this in 1984, and this prediction in 1984 is that there would be much
more economic protection as a consequence of the recurring stagflation. This is a
predication that is not validated by events. He pays no attention to the incentives
for European economies to solve their problems with co-ordination and regional
economic integration. He did not expect the deepening of the ties using the
European union- he is looking for separate state led responses.
Esping-Anderson is interested in “new politics.” He is interested in the transition
from an industrial economy to a post-industrial ec