Page 95 - Global Political Economy_Understanding The International Economic Order

CHA PTER F OUR
dence by distinguishing “sensitivity” interdependence from “vulnera-
bility” interdependence. Most economists really are referring to sensi-
tivity interdependence exemplified by responsiveness among economic
variables, such as changes in interest rates in one country that influence
interest rates in another. Vulnerability interdependence, on the other
hand, is what Hirschman and political economists frequently have in
mind when they speak of economic interdependence; this latter term
refers to the possibilities of political exploitation of market interdepen-
10
dencies. Individual states have a powerful incentive either to decrease
their own dependence on other states through such policies as trade
protection and industrial policies or to increase the dependence of
other states upon them through such policies as foreign aid and trade
concessions. International economic relations are never purely eco-
nomic; they always have profound implications for the economic au-
tonomy and political independence of national societies.

The Politics of International Regimes

All economists and political economists acknowledge the need for
some minimal rules or institutions to govern and regulate economic
activities; even the most ardent public-choice economist would agree
that laws are needed to enforce contracts and protect property rights.
A liberal international economy—that is, an international economy
characterized (at least in ideal terms)by such factors as open markets,
freedom of capital movement, and nondiscrimination—certainly
needs agreed-upon rules. A liberal economy can succeed only if it
provides public goods like a stable monetary system, eliminates mar-
11
ket failures, and prevents cheating and free-riding. Although the pri-
mary purpose of rules or regimes is to resolve economic problems,
many are actually enacted for political rather than for strictly eco-
nomic reasons. For example, although economists may be correct that
an economy benefits from opening itself to free trade whether or not
other countries open their own markets to it, a liberal international
economy could not politically tolerate too many free-riders who bene-
fit from the opening of other economies but refuse to open their own
markets.

10
Robert O. Keohane and Joseph S. Nye Jr., Power and Interdependence: World
Politics in Transition (Boston: Little, Brown, 1977).
11
In nontechnical language, a public or collective good is one that everyone can
enjoy without having to pay for the use of the good. A frequently used example is a
lighthouse. Because of this free use, no one usually has an incentive to provide them,
and therefore public goods tend to be “underprovided.” The literature on this subject
and on proposed solutions to the underprovision problem is extensive.
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