Lecture 14.docx

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31 Mar 2012
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Lecture 14
The Repeal of the Corn Laws (cont.). 1846. First significant shift towards free trade.
Urbanization. Industrialization. Electoral shift (more capitalists voting). Irish potato
famine. The UK does not create a conference to discuss policies towards corn and
grains; they unilaterally decided to not charge tariffs, even though they didn•ft produce a
lot of grains. They allowed other grains to enter the UK without charging tariffs but
british goods, being exported, were charged tariffs. Unfairness; unilateralism;
exploitation.
Why? Industrialization, transportation, potential shift towards free trade in Europe.
Belief that B repealed the laws and other countries followed. Very rapid growth of trade
that happened suddenly at the end of 19th century. What caused the peaks in trade at the
end of 19th century and end of 20th century? Trade prospers at times of British
hegemony and visible political stability thanks to hegemony. When there is no hegemon,
trade declines and countries resort to protectionism, deflect scenario of Prisoner•fs
Dilemma. Theoretical argument: in order to have free trade and escape prisoner•fs
dilemma we need a hegemon we are going to have an increase in the amount of free
trade. When there is no hegemon, countries resort to protectionism. Why was Britain
moving to free trade? Thanks to the Industrial Revolution, Britain comes at the top of
the world and has an interest in diversifying their products, and once they repealed their
corn laws, other countries followed with no agreement because it made economic sense.
In between both world wars there was no hegemon as US was succeeding Britain. The
Kindleberger Spiral. It shows us the volume of trade starting in 1929 (great depression)
and ending in 1933. Throughout the G.D. The volume of trade continues to contract and
the depression gets worse and worse. What creates the decline in trade? More and more
countries adopting protectionism because under the recession we have a lot of domestic
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sectors hurting. Currencies plunging. Protection of industries and countries ->
protectionism. Once some countries start the rest don•ft want to be exploited and
everyone adopts protectionism stopping trade which hurts manufacturing creating
unemployment and poverty. Need to prevent governments from following their instincts
Lecture 14
and adopt protectionism, which makes sense for one country but is a mess when
adopted massively. If we had a hegemon in 1929 there would be no spiral because the
hegemon•fs power would calm down the system and provide the guarantees to allow govt
to resist the instinct towards protectionism.
Based on Kindleberger, more modern political scientists (Krasner) developed the
Theory of Hegemonic Stability. It assumes that a hegemon enjoy comparative advantage
and there is something that allows them to grow and be successful; and as such, having
the comp advantage, they benefit from free trade and they want free trade because of the
benefits it brings thanks to the comp adv and it is willing to pay the cost of policing and
who defects and who cooperates. Hegemony suggests stability and security, which are
beneficial for trade. A hegemon is not altruistic but it puts forward and construct a
system to serve their own interests; they don•ft want to provide a system for the others
but it actually protects their own interests; they set trade rules for their own good and
mainly serve their needs; it is not a fair system. When needed, a hegemon could use
force in order to force other countries to open up to free trade (Opium Wars). In short, a
hegemon solves the prisoner•fs dilemma by institutionalizing free trade by establishing
cooperation and trust while punishing defectors, even though it is expensive. The
evidence for this theory is Pax Britannica and Pax Americana (US and UK peaces thanks
to their hegemony). Causation.
The Evidence. 1840-1870 Pax Britannica. 1870-1900 Decline in trade (decline in british
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power?). 1900-1914 Rapid increase in trade. 1914-1945 World Wars and Great
Depression (in economic terms the US was already the hegemon because it had all the
capacities to play the role but no political will as it didn•ft see itself as a hegemon;
international isolationism). 1945-? Pax Americana. The Hegemonic Stability could be a
plausible theory. It is very elegant and parsimonious, with very little we can explain a
lot. However, the evidence is inconclusive. It is a very static theory because doesn•ft tell
us about fall and rise of hegemons or when/why will we reach the end of Pax Americana.
We also don•ft know how it works in practice, diplomacy? It also underestimates the role
of institutions. Is it only about the hegemon? How does it work? What role do
institutions play?. It is a realist theory because it is focused solely on the states and it
involve the enforcing of policies (self-interests) and there is no pursuit of happiness for
everyone but only for the hegemon and it•fs all about the distribution of power. It doesn•ft
matter who the hegemon is, but only the distribution of power.
Lessons from WWII. Creation of United Nations to help us avoid disasters of another
world war. Economic strategy. Important role of the economy in thinking about peace.
People in the 1940•fs connected it directly to the Kindleberger spiral and the Great
Depression. While looking at the Great Depression as the cause, they noticed most
countries deflated their currencies and the rest had to be done by the market, which
tended not to work. Deflation and laissez faire lead to more unemployment and turmoil.
These issues lead to protectionism which made things worse and all this brought the rise
of extremist political movements and then war. Need for institutions to prevent
countries from going down the drain and prevent another depression.
The institutional solution for this was the Bretton Woods. In 1944, 44 nations met in
Bretton Woods, New Hampshire to discuss what kind of institutions would be put in
place. Harry White (US) and John Maynard Keynes (UK). Creation of three institutions:
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