In the realm of international trade, nations must work together to achieve the outcomes they are looking for. This is known as collective action. In spite of the benefits of collective action, there is a dilemma that arises in the form of nations who do not pull their weight, coming up short in the overall inventory of contributions, both in supplies and funds, to other countries it is trading with. From a liberal perspective, collective action must be taken in order to create a more just level of product and an economically stable system that benefits all. However, this cannot be done as an excuse to bring forth one nation over others.
In a realist perspective, it must be acknowledged that some nations do indeed carry more resources and power than others, and if wielded benevolently they can bring about a stable economy that benefits all, likely under their economic power. The question remains however; does collective action bring about greater cooperation between nations, or does it allow certain countries to selfishly pursue their own interests at the expense of other nations? In this essay, these issues relating to international trade and collective action will be explored.
Trade can be impaired in the presence of a hegemony; hegemons are typically able to protect a merchant from being stolen from or abused in any way; and so the actions of the buying party would be impossible to predict or enforce (Kling, 2008). The power and resources granted a hegemony make it the most powerful being in the economic equation; those who seek to work with it will always be at its mercy. Because it has all the power, it sets the standard for economic, cultural and political actions and beliefs; it then exercises this power as it sees fit.
However, how should that power be exerted – benevolently or selfishly? A liberal perspective favors the former, as the power granted the hegemon must be shared in order to give back to the global community which made the hegemon great. However, realists surmise that the hegemon, having all the power, should be allowed to exercise it for its own gain. While this helps the hegemon greatly, it does not benefit the lesser state as much as it should.
In hegemonic stability theory, the economic stability of a region is directly dependent on the presence of a hegemony, which can lead the other countries and enforce rules for conduct and business. One example of this is the Great Depression of the 1930s; the lack of a hegemony in the area, since there was no clear world leader, helped bring about those events. Bilateral and regional bargaining ended up “choking off international commerce and finance in the 1930s, prolonging the Great Depression” (Oye, 1993).
The United States would be the clear hegemon in the world economy today. There are those who believe the European Union is “a new model for supranational governance,” but the newness of the unified economic treaty means that there are still plenty of growing pains to be had. The diversity of the needs and cultures of these countries in the European Union would prevent them from combining successfully enough in a single nation-state the way America has, and therefore would not have the economic power to usurp the USA as the new hegemony presiding over a global economy (Krasner, 2001).
Restricting trade and performing protectionism through a hegemony is necessary and sensible in a great number of contexts – when dealing with foreign nations, it can really come in handy to prevent unfair business practices and equivalent trade between nations. Protectionism is typically accomplished through subsidies, exchange rate manipulation, tariffs, import quotas and more – all of these are meant to benefit the recipient nation and allow them to gain profit from the potentially dangerous prospect of international trade.
At the same time, this can be abused by an unfair hegemon to prevent globalization and stop lesser nations from benefiting from technological advancements and extra resources carried by the hegemon. Liberals look down greatly upon protectionism, due to the fact that this severely cuts out other nations in opportunities and resources; realists, however, see it as ‘protecting’ the interests of the home nation. According to realist economics, it makes little financial sense to practically give away its precious goods and resources without getting as much as they can out of the deal.
In game theory, situations are modeled (particularly economic ones) and demonstrated in order to gauge social reactions to international trade. Whether free trade or tariffs are the best idea is left to game theory to find out – this also factors in how attractive an option it is to go behind your trade partner’s back in order to get a better deal (Ding, p. 3).
One example of a game that could be played in international trade is a “game of strategy,” wherein “the payoff to each player depends not only upon his actions but also upon the actions of others” (Shubik, p. 1). This is a very liberal perspective to take through the game, as it implies a very symbiotic relationship between nations – a realist would have few qualms with the hegemony exerting its power over the lesser states.
Collective action is often required in order to facilitate smooth relations between nations. In collective action, countries all act together in order to facilitate a chance in either the political or economic landscape. A political party can change or be forced to change; economic relations and trade agreements can shift according to the needs of the collectively acting nations. In order for collective action to occur, a dilemma must exist, such as the destruction of the gold exchange standard, which is a failed dilemma of collective action (Oye, p. 117).
Collective action is dependent as much upon leadership as anything else – two models of leadership include democratic and bureaucratic; liberals prefer the democratic model, as it allows for the needs and desires of all the people to be heard and taken into consideration (Alexander, 2010). The bureaucratic model, on the other hand, seeks to set those making the requests apart from those granting them. As a result, more and more responsibility is set upon the leaders, who seek to protect and benefit themselves. This does not work for the people; in a larger, international setting, the hegemon makes bureaucratic decisions to benefit itself, at the expense of the smaller states it is trading with.
There are a number of ways in which countries can cooperate in order to create a more perfect economic system. Collective boycotts or tariffs create a large show of force, demonstrating a nation or hegemony’s loyalty or disapproval of a certain company or product. What’s more, collective action can be taken for political reasons, refusing to support that country financially in the event of other political or economic actions it deems distasteful. On the other side of the coin, collective action can be taken to take advantage of a new vein of resources or development of an innovative new product that would revolutionize or dramatically improve the quality of life of all nations involved. This allows for a tremendous gathering of collective resources to better facilitate the creation or development of this product, allowing everyone to experience gains more quickly.
Krasner (2001) argues that, despite popular theory, the sovereign state is far from dead – countries such as the United States have managed to maintain their uniqueness and autonomy without having to fall into a pattern of collective action, unlike countries such as China and Japan (p. 20). The challenge of globalization makes the nation-state uniquely equipped to handle change, providing individual leaders with global status and allowing nation-state economies to stand on their own merits.
In order to succeed as a hegemon, leaders must have a grand strategy which involves comprehending exactly how the international environment works, seeing the ultimate fate of that environment through various changes in leadership and opportunity, setting policies to enact those schanges, and so on. Other actions are required as well, such as the ability to foresee potential pitfalls and account for them, organizing the state in a way that smoothly enacts these policies, collecting the resources required, and gaining support from the lesser states (Krasner “Orienting Principle”, pp. 4-5).
Depending on the viewpoint, a gesture of collective action can be enforced by a variety of people. In the event a boycott were to occur in one nation, other nations would definitely feel the effects; the intimate cooperation of international trade makes this a certainty. Realists believe that, without anyone to enforce rules and keep international trade under control, states would serve themselves and continually perform unfair practices to their neighboring states. On the other hand, if nations were to operate collectively, positive outcomes could be reached for everyone.
The fact remains that there are those who would benefit from the work of others in an unorganized market, due to the fact that “no actor can be excluded from the benefits of a public good” (Oye, p. 21). Realists, in fact, are not in approval of “the central role of the state, security and power in international affairs,” despite recognizing that it is necessary (Gilpin, p. 15). Realism and nationalism have their own unique differences; one can recognize the need for the state or its role in international trade without necessarily subscribing to its various principles.
Hegemonic states can typically exert a great deal of influence on the trade dealings of nations, due to its status as a leader or pioneer of economic action in the area. They set policy through prices or edicts, and have the military and economic ability to enforce those rules. This forces the smaller nations in the area or economic agreement to step in line, lest they be crushed by the larger power. Realists believe this to be necessary, as the self-interest of each state is thought to be most important to those living in it. Liberals, on the other hand, feel the need for endless cooperation and assistance rendered towards the smaller states on the part of the hegemony, giving up potential financial gain for the sake of these lesser states’ welfare.
Coercion is one way in which hegemonies make other nations comply with their policies. Economic and military sanctions can be levied against those nations who fail to do what the hegemony orders of them. Liberals do not believe nations should be coerced into playing along with the actions of a hegemony; the individual state should have the right to act as they please. However, realists recognize the need for cooperation if the other nations in the region, including the hegemon, are to succeed. As a result, coercion and sanctions can often occur on the part of a hegemon toward an uncooperative nation.
In conclusion, both liberal and realist viewpoints argue for a greater sense of collective action against their respective economic problems. However, the problem is that the hegemon can typically reverse the fortunes of an entire country if it so desires, which is a philosophy that is difficult to justify. Liberals believe that a country should be more willing to cooperate, whereas realists would seem to favor the success of a select few over the weak many. Regardless of the viewpoint, collective action in trade remains an important part of the international trade system. However, given the realist’s penchant for allowing a hegemon to act on its own regardless of the wishes of the lesser states, particularly as there is no higher power to enforce punishments upon them, a more liberal viewpoint would foster greater international relations, lead to a greater political relationship between nations, and offer more options for collective action.
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