Hegemonic Stability Theory: The Rise and Fall of the
US-Leadership in World Economic Relations

by

 Julia Schubert

Content

1. Introduction 3

2. Hegemonic Stability Theory  4

2.1 Hegemony  5

2.1.1 The Hegemon and its System 5

2.2 Problems of the System – The Hegemon´s Decline 7

3. The US-Hegemony 8

3.1 The Postwar Economic World  8
3.2 Planning the New World Order under US-Leadership  10
3.3 The Establishment of the American Hegemony  11

3.3.1 Bretton Woods Conference (1944-1976)  12
3.3.2 The IMF and the World Bank  13
3.3.3 The GATT 15

4. The Decline of the US-Hegemon 17

6. Conclusion – Hegemony Today and Problems of the Theory 20

7. Literature  22

1. Introduction

In the second half of the 20. century the term of “Hegemonic Stability Theory “ was introduced by political scientists such as Stephen Krasner, Robert Gilpin and Robert Keohane to explain the mechanisms of the new economic world order that had been established after the Second World War.¹ The main assumption of the theory that a stable liberal economic world order needs a hegemo n was explained with the examples of the British hegemony in the 18. and 19. century and with the example of American hegemony in the postwar years of the second half of the 20. century. This term paper intends to answer the following questions: What is Hegemonic Stability Theory about? How is the shape of the hegemonic system? Why will it decline? The theoretical assumptions will be extended by a closer look at the UShegemony. How was it possible that the US could establish their leadership in the international economic system? What did they do to create a stable global economic order? Of course, the last questions have to answer why the US weakened and why their hegemony eventually declined? How is the situation today? Is there still a hegemon?

To answer these questions, the first part of the paper will summarize the main assumptions of the theory. Then, the international economic situation after the Second World War which enabled the US to become the world´s hegemon will be shortly presented. The following chapters will deal with the establishment of the UShegemony by creating international regimes such as IMF, IBRD and GATT. Finally, the end of the paper will explain how the American hegemony declined and which role it plays in the present international economy.

2. Hegemonic Stability Theory

Initiated by Charles P. Kindleberger the theory of hegemonic stability generally argues that „states can only cooperate economically with one another when a hegemonic power holds the ring, economically or militarily“.² The theory was developed in the 1970s to explain the Pax Britannica and the Pax Americana ³. In his book of 1973 The World in Depression, Kindleberger as an economic historian explained the outcome of the great depression at the beginning of the 20th century with the weakness of Great Britain to stabilize the international system and the unwillingness of the Unites States to do so, although it was strong enough. Eventually, Kindleberger comes to the conclusion that “for the world economy to be stabilized, there has to be a stabilizer, one stabilizer.”⁴ This function has to be fulfilled by the hegemon, who is the dominant power in the system. Furthermore, Kindleberger states that a liberal international economy requires a hegemon committed to liberal economic principles, that are the principles of free markets, openness and nondiscrimination. Generally, the prerequisites for the emergence and expansion of the liberal market system within the international economy are hegemony, the liberal ideology and common interests.⁵

Some more general statements on the central propositions of the HST were made by Robert Keohane who argues that order in world politics is typically created by a single dominant power and that this order is constituted by the formation of regimes and the provision of public goods. Another assumption is that the maintenance of this order requires a continued hegemony which implies cooperation between the participating states within the system. ⁶ Since these are only the main assumptions of the theory in general, it is necessary to have a closer look at hegemony and the hegemon in the following parts of the paper.

2.1. Hegemony and the Hegemon´s System

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1 Reinhard Rode. Weltregieren durch Internationale Wirtschaftsorganisationen. Halle, 2001: 24.

2 Richard Rosecrance. The Rise of the Trading State: Commerce and Conquest in the Modern World. New York, 1986: 55.

3 David Lake. “British and American Hegemony compared: Lessons for the Current Era of Decline.” In: The International System and the International Political Economy: Volume 1: Hegemony and Cooperation in the International Economy. Joseph M. Grieco (ed.). Aldershot, 1993: 130.

4 Charles P. Kindleberger. The World in Depression: 1929-1939. Berkeley, 1973: 305.

5 Robert Gilpin. The Political Economy of International Relations. Princeton, 1987: 72-73.

6 Robert Keohane. After Hegemony: Cooperation and Discord in the World Political Economy. Princeton: 1984: 31-39.