Freie Universität Berlin
Humboldt-Universität zu Berlin
Universität Potsdam

Gemeinsamer Master-Studiengang Internationale Beziehungen
Arbeit zur Erlangung des Grades
Master of Arts Internationale Beziehungen

Is US Economic Power in Decline Since the 1970s?

vorgelegt von :Jan Fichtner

Contents

I. Introduction ... 3

II. 1. Elucidating the Elements of the Research Question ... 5
II. 1. 1. The US as an Actor on the International Stage ... 5
II. 1. 2. Power in International Political Economy ... 9

II. 2. The Development of US Economic Power ... 17
II. 2. 1. The First Decades After the End of World War II ... 17
II. 2. 2. The 1970s: The Demise of the Bretton-Woods System ... 20
II. 2. 3. The 1980s: Reaganomics and the Proclaimed US Decline ... 27
II. 2. 4. The 1990s: ‘The End of History’ and the Asian Financial Crisis ... 36

II. 3. Assessing US Economic Power at the Beginning of the 21st Century ... 47

III. Conclusion and Perspectives ... 59

IV. Bibliography ... 65

I. Introduction

Power – and especially economic power – is one of the least researched concepts in International Relations¹, yet it is arguably one of the most central phenomena for this academic discipline. The purpose of this study is twofold. First, the goal is to shed some light on the obscure concept of economic power and to illuminate its many facets and varieties. One of the most important aspects will certainly be the introduction of the concept of structural power as developed by Strange. Subsequently, the insights about economic power shall be applied to the international position of the United States as it has developed since the early 1970s. This point in time has been chosen because it marks a fundamental break in the international political economy since the end of World War II, according to Helleiner and other observers.² The government-led Bretton Woods system with its inherent fixed exchange rates and its intended confinement of finance to the domestic realm was effectively terminated by the US in the early 1970s. Instead, a market-led ‘non-system’³ characterised by free floating exchange rates emerged in the field of international finance.

This study begins, however, with a chapter about the political and social nature of the United States. The concepts of the ‘Lockean heartland’ and the ‘Anglosphere’ are presented here. Both ideas come from intellectually very different backgrounds, yet they are strikingly related to each other. The inclusion of these two connected concepts is vital to this work because only they render the analysis of the full dimension of US economic power possible. Without their application the findings of this study would remain incomplete. This section is followed by a theoretical chapter about power in the international political economy. Together they form part one of this study.

Part two is an analysis of the historical development of US economic power. The situation as it has evolved from the end of World War II until the 1970s is presented only very briefly in chapter II 2.1. as it lies outside the focus of this work. Nonetheless, the understanding of this period is essential for the analysis of the post-Bretton Woods era. Chapter II 2.2. deals with the termination of the Bretton Woods system in the early 1970s, the underlying factors for its demise such as the emergence of the ‘Euromarkets’ and, last but not least, the role the United States played in that development. Chapter II 2.3. analyses the impact of the liberalisation and deregulation policies pursued in tandem by US President Reagan and UK Prime Minister Thatcher in the 1980s on the international financial and monetary system. A central point in that chapter is the argument that in finance it is possible to initiate policies of liberalisation and deregulation unilaterally, whereas in the field of trade that is only possible in a multilateral way. An additional topic analysed in this chapter is the discussion surrounding the (seemingly inevitable) decline of the US in the 1980s and Japan′s predicted rise to power. The central tenets of this debate shall be critically assessed from our perspective more than 20 years later. Chapter II 2.4. deals with US economic power in the 1990s. Firstly, it will analyse how the proclaimed ‘end of history’⁴ in reality covered the ongoing conflict of ‘capitalism against capitalism’⁵. Secondly, the role of US influence on the Asian financial crisis will be scrutinised. Part three, finally, analyses US economic power in the contemporary configuration of the global political economy. The international position of the US dollar and the US financial markets, along with the ‘sticky power’⁶ of the United States, is the main subject in this chapter.

The academic and political relevance of this study lies in the fact that historically the demise of great powers – and the parallel rise of competitors – nearly⁷ always caused intense and violent conflict in the system of international relations.⁸ In addition, the pre-dominance (or hegemony) of states since the 17th century derived in a large part from their economic, and especially their financial power.⁹ This, in turn, is why this study seeks to find whether or not US economic power has been in decline since the 1970s.

II. 1. Elucidating the Elements of the Research Question

Before it is possible to answer the question of whether economic power of the United States is in decline since the 1970s – in an intersubjectively understandable and verifiable manner – it is imperative to elucidate the major elements which constitute this research question. These two elements are ‘the US’ and ‘power’.

II. 1. 1. The US as an Actor on the International Stage

The first element of this study′s research question is ‘the US’. The United States of America constitutes the centre of reference in all chapters of this work, but what exactly is meant by ‘the US’? In classical realism, for example, nation states were seen as the exclusive actors in international relations. According to this view, to speak of ‘the US’ then means the leadership of the country – the executive arm of government – which takes the crucial decisions related to foreign policy. In the case of the United States that would be the respective administration in office – and in theory that would ultimately be the President of the United States of America.

[...]

1 When International Relations is spelled with capital letters in this study, the academic discipline is addressed; when written in lower case letters, the reference is to the system of international relations.

2 Helleiner, Eric: States and the Reemergence of Global Finance: From Bretton Woods to the 1990s, Ithaca: Cornell University Press, 1994, p.1.

3 Gilpin, Robert: Global Political Economy: Understanding the International Economic Order, Princeton 2001, p.235.

4 Fukuyama, Francis: The End of History?, in: The National Interest, Summer 1989.

5 Albert, Michel: Capitalism against Capitalism, London: Whurr, 1993.

6 Mead, Walter Russell: America’s Sticky Power, in: Foreign Policy, 141 (March/April 2004).

7 An intriguing exception was the peaceful ′hand-over′ of power between Great Britain and the United States which arguably took place during World War I and became manifest in 1921 when London conceded naval parity to Washington (Cf. Dobson, Alan P.: Anglo-American Relations in the 20th Century, London 1995, p.5). I would argue that the key reason was the shared Lockean nature.

8 Huntington, Samuel P.: The Clash of Civilizations, London 1998, p.231.

9 Cerny, Philip: American Decline and the Emergence of Embedded Financial Othodoxy, in: Cerny, Philip (ed.): Finance and World Politics: Markets, Regimes and States in the Post-hegemonic Era, Aldershot 1993, p.167.