Page 111 - Global Political Economy_Understanding The International Economic Order

CHA PTER F OUR
but can seldom, if ever, coerce reluctant states to obey the rules of a
liberal international economic order.
The American hegemon did indeed play a crucial role in establish-
ing and managing the world economy following World War II; strong
support and cooperation were provided by the Cold War allies of
the United States. Moreover, as Downs and Rocke point out, regime
compliance ultimately is dependent on domestic support. Post–World
War II regimes rested on what John Ruggie called “the compromise
of embedded liberalism,” in which governments may and do inter-
vene in their domestic economies to promote full employment but
must also conform to internationally agreed-upon rules. 47 Postwar
trade liberalization was politically acceptable because governments
pursued policies to guarantee full employment and to compensate
those harmed by the opening of national markets to international
trade. Solution of the governance problem was, for decades, achieved
through leadership, international cooperation, and domestic con-
sensus. 48
The idea that a liberal international economy requires strong politi-
cal leadership by the dominant economic power was initially set forth
by Charles Kindleberger in The World In Depression, 1929–1939
49
(1973). According to Kindleberger, the scope, depth, and duration
of the Great Depression were more severe because there was no leader
to carry out several tasks necessary for the world economy to func-
tion properly. Some of these tasks must be performed even in normal
times; others are needed in a crisis. In normal times a leader must (1)
maintain the flow of capital to poor countries, (2)provide some order
in foreign exchange rates, at least among the key currencies, and (3)
arrange for at least moderate coordination of macroeconomic policies
among the leading economies. In times of crisis, the leader, in Kindle-
berger’s words, must provide “open markets for distressed goods in
depression and be a source of extra-supply when goods are tight, as
in the oil crises of 1973 and 1979. The economic leader must also be
a ‘lender of last resort’ in the event of a serious international financial

47
John Gerard Ruggie, “International Regimes, Transactions, and Change: Embed-
ded Liberalism in the Postwar Economic Order,” in Stephen D. Krasner, ed., Interna-
tional Regimes, 195–231.
48
Governance involves the establishment and operation of social institutions or sets
of rules that guide the interaction of actors. This definition is set forth in Oran Young,
ed., Global Governance: Drawing Insights from the Environmental Experience (Cam-
bridge: MIT Press, 1997).
49
Charles P. Kindleberger, The World In Depression, 1929–1939 (Berkeley: Univer-
sity of California Press, 1973).
98