The Market for Power and Influence

The College Historical Society recently hosted a debate on whether the decline of American global economic dominance was to be welcomed or feared. It was eventually concluded that America’s influence on the rest of the world was broadly positive: in promoting good state institutions, pro-market policy and international development aid.

This author disagrees however. After all, geopolitics is simply a market for power and influence and America was until recently a monopoly vender. As any economist knows, that’s bad news for consumers.

Despite all the talk of co-operation, international relations is based on reciprocal concessions. Development aid, whether it comes from the European Union or the World Bank, comes with conditions. Tariffs are only abolished on foreign exporters if quotas are removed for domestic firms selling their goods abroad, et cetera. The failed Doha Round of WTO talks is a pretty good example of this diplomacy in action.

After the decline of the Soviet Union, the United States become the monopoly vender of global political, economic and military power. They also possessed a monopsony on the purchase of influence from smaller states throughout the world, and their privileged position had consequences for the kind of reciprocal concessions that took place.

If a poor developing nation needed US influence to be deployed in a political dispute, they couldn’t shop around in the past. America was the only game in town, and it knew it. Thus, the US had the freedom to raise the price of that help through the roof – whether they were looking for privileged access to domestic markets for American firms, support in political disputes, or whatever.

Conditionality of development aid places the issue in starkest contrast. Industrialised countries know the reciprocal benefits of economic growth in poorer nations, and thus have a strong interest in their development. Of course, there’s no such thing as a free lunch. But today, at least developing countries have a few options.

With the rise of China, America can no longer place demands as onerous smaller states. Instead, they must compete for the influence and favours that they are receiving – competition for control of natural resources today is fierce, and in many respects the US is losing this battle (exacerbated by the recent economic crisis).

Who benefits from this competition? Poor, developing nations throughout the world stand to gain considerably – and as the EU rises, the market for geopolitical power and influence will become even more competitive. So if you are welcoming the decline of America as global economic hegemon, you are welcoming increased consumer choice for developing nations – but with a caveat: some poor nations may not have leaders with noble intentions, and they have increased bargaining power too.

In the future, poor nations will generally though receive better and more free trade, more development aid, and more political help than in the past. That’s basically a very good thing, given the very real need. The multi-polar geopolitical stage of the future will fight more competitively for the privilege of investing in the future wealth-creating capacity of the world’s poorest people. If that requires the decline of America’s status as global hegemon, this author welcomes it.

© The Free Marketeer 2010

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