Part I
The theory of hegemonic stability is a theoretical modification of the common observation in post-world war II international relations. United States control was the key player in the successful world capitalist economy after 1945. Us in the late 1940s possessed not only prestige and unrivaled power, but also it had a purpose. America in three decades had intervened in two destructive wars after which it decide to remodel the formation of international economic and political relations in such a consistent way with its interest and liberal ideals. GATT-based multilateral trade and Bretton Woods international monetary regimes were the main legacies of the purpose and post-war power of the United States (Jensen, 2003).
The Bretton Woods monetary system was established in 1944 and named after the New Hampshire town where the conference was held. After post-war the US and UK treasuries embarked on planning the monetary reconstruction. During this conference, the plans that were developed by John Maynard Keynes and Harry Dexter White of Britain and United States Treasuries respectively were discussed. However, White’s plan dominated the discussion reflecting the overwhelming power of the US. The interwar period had compromised the flexibility of exchange trade and particularly the 1930s floating rates had facilitated competitive depreciation and destabilizing speculation. Consequently, during those eras of activist economic policies the member states were not willing to return to permanently fixed rates that were typical of the nineteenth-century classical gold standard model (Bordo 1993). The policy-makers had the idea of retaining the currency value revising right as the circumstances would dictate. Therefore, a consideration was made between the irrevocably fixed and the freely floating rates. What rose was par value system (Frieden, 1991).
As the exchange rates were not to float freely, there was a need for assurance of an enough supply of monetary reserves. The member states did not want to alter the gold exchange standard. America in particular was not willing to alter neither the value of its gold reserves nor the central role of its dollar. For deficit countries, the negotiators agreed on some desirable supplementary sources of liquidity. However, the question here was either to go by limiting mechanism proposed by White or to adopt the Keynes proposal. His proposal was that the sources would be akin to a world central bank that would willfully be able to create new reserves (Frieden, 1991). Consequently, a system of quotas fixed in the IFM was adopted, and it reflected the America’s preference. As the voting rights were allocated according to the proportion of quotas and thus US assured its self-adequate sanction over decision-making in the future. The Bretton wood system described structurally combined a commitment to communal responsibility for monetary management and the customary principle of national sovereignty ideally that of US.
After the war the transition period to Bretton was brief, the initial funds were sufficient to cope with difficulties in payments that were raisins, and the monetary relations were quite stable. Therefore, after a short period IMF lending shrank, and the burden was unloaded to United States. The reason was that US had economic and financial resources need handle monetary stabilization global. Amazingly US were not only able but was more than willing to take that responsibility for reasons better known to it. In this situation, the United State exercised its hegemony in three principal ways. One, maintain a relative open market for foreign goods importation. Second, this responsibility initiated a generous flow of grants and long-term loans through reopened capital market in New York and Marshall Plan. In addition, America exercised its hegemony through the established liberal lending policy for granting short-term funds during the crisis. As the most countries were almost exhausting their reserves, and the liquidity funds were inadequate, the rest of the countries ready to accrue dollars (Frieden, 1991).
The central bank gold was scarce outside America at these times and more so the prospects for new gold were limited. Therefore, United States was the only remaining source of global liquidity growth due to the deficit in its balance of payments. On the other hand, governments with surplus bought dollars to stabilize their exchange rates. US promised to convert its dollar at a fixed price for gold. In formal design, Bretton Woods’s system was multilateral (Jensen, 2003). However, in practice it was more less the same as hegemonic monetary structure centered on the dollar. Ideally it was much in the same way as the traditional gold standard of the 19th century had been centered on Britain’s sterling pound. In the same way as Britain in the nineteenth century America did not seek global monetary leadership. On the other hand, unlike Britain, America welcomed the responsibility. As the US was now the global monetary manager, its responsibility did fit well in fighting Soviet Union a cold war. The United States policy makers thus saw the need to rehabilitate the economies of Soviet Union allies in Japan and Europe and to maintain its military establishment overseas. America was free from external payment constraints thus it could freely to promote agendas that were deemed of national interest. This policy was conceded autonomy to America by the foreign dollar holders as it facilitated the recovery of their economies (Jensen, 2003).
The economy of America enjoyed robust expansion during 90s. The big question here is whether the combination of causes and effects of this expansion are sufficient to warrant the title “New economy.” In Germany, a period of financial trial following reconsolidation with it leveraged Eastern recovery appears now to move toward full economic reinvigoration. When the Unite States economic boom began in the early 1990s, basis for economic revival had been laid. However, late in the decade resurgence appeared to be quite apparent and eventually they become robust. Germany, during this period was tracking a brilliant future as it was the leading player in the European monetary union (Rogowski, 1987).
Part II
Documentary records indicate that, ever since memorial, the G8 nations have presented opposing models in the development trajectories as well as in conducting the economic policy. These diverse structures have resulted in varying fonts of national development and economic operations. A closer view of two of these nations that is, United States of America and German provides opposing models with deep historical roots (Frieden, 1991). The United States of America optimizes capitalism model that supports market base and does not provide power to labor unions. Germany, on the other hand is socially based with corporatist culture. The nation economic development is based on strong labor unions and democratic management
In Germany, democratic management system enables the organizations to possess large and powerful shareholders. The company enjoys relatively close relationships with other unions and banks. In terms of manufacturing, Germany has an excellent method of flexible forms of customized production. The manufacturing industry uses skilled manpower together with general purpose machines. Contrary to the above, American manufacturers strictly adheres to the format of mass production from the specialized machines (Jensen, 2003). The producers still use narrowly defined skills that require relatively close supervision. This format of production, to greater extend limits their level of development. As observed, the big question that everyone would want to ask, what are the historical roots of these two contrasting styles? How long will they exist and what does the future holds for the two nations?
Historians and economic scholars have postulated that, these contrasting styles of socialism and capitalism originated way back in 19th-century. It is true that the paths that these two nations took for their economic development and prosperity is full of twist and turns thus requires a relatively higher level of scrutiny and a systematic comparison. Klemann in his work believes that the comparison will provide a conventional understanding of the unsettling issues. This need has stimulated empirical and in-depth research in order to understand the historical virtues that have shaped the modern German and United States Economy. Given the space constraint in the paper, providing a coherent analysis may be limited (Rogowski, 1987). In United States of America, it has become virtually visible that, there is an increasing anachronism, and the economic policies have remained in the power of the federal government. Almost all the internal and the international industries are owned by the national government. In Germany, the system is different since all the economic policy making is spread across the policy domains. This variation sets these nations’ economies and development along different sections (Rogowski, 1987).
The underlying story beyond the models can be traced to the following myths. During the Alexander Garschenkrons Phase, German was mainly characterized by underdevelopment and economic backwardness. During the period, its economy was mainly boosted by the some powerful universal banks, protective tariffs, and strong trade unions. The nation lacked a strong domestic market therefore it resorted to exportation of most of the products. United States on the other took the advantage its early forms of industrialization. The nation invested in massive domestic market and mobilized capital on the Wall Street. However, German continued to strategize and experienced an unprecedented economic and structural transformation. Research studies indicate that both the two nations experienced relatively intense international competition at the onset of their industrialization as compared to Britain, Japan, and France. Statistical analysis indicates that, most of these nation`s GDP per capita increased at various levels. United States of America at 116%, Germany 100%, Britain, 54%, while France at 74%. The structure of all these nation economies had been recognized internally (Jensen, 2003).
Both Germany and America in the last part of the twentieth century have faced tougher pressures for economic changes mainly in the form of increased financial and economic turbulence, competition, and global slowdown. The Bretton Woods system had severely affected the global economy and caused slowed growth in both countries. In this volatile and uncertain economic environment the structural developments made by these nations intensified their competition. Over time, the scope of liberalizing agenda has broadened from focusing on tariffs and quotas to incorporate internal legal and regulatory requirements that relate to products and processes standards (Jensen, 2003). The domain of the private sector has also expanded, and this has opened new avenues for market competition and the imposed social regulations have imposed constraints on firms in the areas of environmental protection and safety issues. The advance in information and communication technology has significantly altered the production methods. Mores so it has increased the tradability of several services that were confined to a single home market as well as creating new industries (Jensen, 2003).
The rapid growth of industries and technology has naturally tightened the global competition in product market. But it is the impact of European monetary Union that has brought about these product market pressures in Germany. The main purpose of the union was to increase efficiency and productivity of the firms in member countries through the elimination of regulatory, fiscal, and physical barriers. This liberalization has significantly affected the market for goods and services. The pressures for the structure convergence due to deepening economic integration are making it difficult and expensive for nations to resist moving toward the United States style of capitalism. The US current model in compasses privatization, low taxes, openness all round, and flexible labor legislation. The ongoing developments in Germany support this path. Its welfare-state related to social market capitalism and the protected labor law markets are under pressure (Bordo, 1993). Its firms are restructuring and downsizing due to popular and political opposition. In addition, the importance of temporary and part-time jobs has increased and essentially these are the order of the day in United States. In America, corporate governance is highly regarded today to counteract the corporate scandals that were emerging with the fall of Enron 2011.
A close view of the future, both America and Germany and their contemporary capitalism are searching for ways to combine the global convergence pressures with domestic economic goals. In particular goals appropriate to the social approaches and organizations of their community (Jensen, 2003). Both forms of capitalism play a critical role in global convergence, and they are also undergoing a critical change in the process. Germany system is improving transparency and to adopting the American system. America, on the other hand is perfecting its system.
References
Bordo, M. D. (1993). The gold standard, bretton woods, and other monetary regimes: A historical appraisal. Review - Federal Reserve Bank of St.Louis, 75(2), 123. Retrieved from http://search.proquest.com/docview/227744939?accountid=1611
Frieden, J. A. (1991). Invested interests: The politics of national economic policies in a world of global finance. International Organization, 45(4), 425. Retrieved from http://search.proquest.com/docview/219245986?accountid=161
Jensen, N. M. (2003). Democratic governance and multinational corporations: Political regimes and inflows of foreign direct investment. International Organization, 57(3), 587-616. Retrieved from http://search.proquest.com/docview/219223298?accountid=1611
Rogowski, R. (1987) Political Cleavages and Changing Exposure to Trade; The American Political Science Review, Vol. 81, No. 4. pp. 1121-1137
