Page 109 - Global Political Economy_Understanding The International Economic Order

CHA PTER F OUR
members only when there is a dominant firm capable of acting as
enforcer. In its absence, duopolies of, say, neighboring firms may be
the most that monitoring and enforcement capabilities can support.
This suggests that the growing prevalence of bilateralism is a corol-
lary of the increasingly multipolar nature of the world economy.” 41
Thus, Eichengreen has set forth a plausible explanation of why the
decline of American leadership has contributed to the increasing im-
portance of bilateral negotiations and regional arrangements in the
world economy.
Other leading economists have also supported the validity of the
theory. For example, Nobel Laureate Robert Mundell, a distin-
guished expert on international monetary and financial affairs, has
pointed out that the stability of the international monetary system is
dependent upon a dominant power. Other international economists
such as Robert Baldwin and Swiss economist Bruno Frey have also
written in support of the idea that a hegemon is necessary. Baldwin
writes, for example, that the hegemonic role played by the United
States increased the economic welfare of most non-Communist coun-
42
tries. According to Frey, public choice theory suggests that it is im-
possible for public goods to be provided if there is no hegemon. 43
One of the most interesting arguments supporting the necessity of a
hegemon was set forth by Mancur Olson. Olson’s views are especially
apposite because of his innovative work on provision of collective
goods and the fact that many critics of the theory cite his work to
support their own criticisms. Commenting on provision of the collec-
tive good of free trade, Olson presents an ingenious theory based on
domestic politics to explain why it is so difficult for a country to
reduce trade barriers unilaterally and in the absence of external pres-
sures exerted by a powerful state. 44 He then concludes, “Thus the
world works better when there is a ‘hegemonic’ power—one that
finds it in its own self-interest to see that various international collec-
tive goods are provided.” He continues, “Naturally, the incentive a

41
Eichengreen, in ibid., 121.
42
Robert E. Baldwin, “Adapting the GATT to a More Regionalized World: A Politi-
cal Economy Perspective,” in Kym Anderson and Richard Blackhurst, Regional Inte-
gration and the Global Trading System (New York: St. Martin’s Press, 1993), Chapter
18; Bruno S. Frey, International Political Economics.
43
Frey, International Political Economics. According to Frey, Arrow’s “impossibility
theorem” demonstrates that with three countries and three goals, common or coordi-
nated policies cannot be reached when each country has a different ordering of priori-
ties. Leadership is required to break the deadlock
44
Mancur Olson, in De Melo and Panagariya, eds., New Dimensions in Regional
Integration, 122–27.
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