[Global Column] Hegemonic Instability in the International Economy

According to the hegemonic stability theory, regarded as the most famous theory in the field of international political economy, the liberal international economic order can be stably maintained within a hegemonic power structure where power is concentrated in a specific country. Charles P Kindleberger, who played the most central role in the development of hegemonic stability theory, argued that the most important reason for the Great Depression in the 1930s was the absence of a hegemonic power capable of maintaining the stability of the international economic system. According to him, at that time, the United Kingdom had the will to perform the role of a hegemon but lacked the capability, while the United States had the capability but lacked the will.

According to hegemonic stability theory, instability and chaos in the international economy stem from the absence or decline of a hegemonic power. Since 1945, the stability of the liberal international economic order has been maintained based on U.S. hegemony, so the decline of U.S. hegemony will cause instability in the international economy. In other words, the decline of the United States is not simply an American problem but inevitably an international issue. The intensifying conflict between the United States and China may accelerate the decline of U.S. hegemony, resulting in the erosion of international economic stability. Although China’s economic scale is rising, it still has many shortcomings to fully assume the hegemonic position held by the United States. Therefore, the hegemonic competition between the United States and China may cause instability in the international economy due to the absence of a hegemon, that is, non-hegemonic instability.

According to hegemonic stability theory, the existence of a hegemon is the most critical variable determining the stability of the international economic system. However, the theory overlooks the fact that the policy preferences of the hegemon can vary. The policy preferences of the hegemon are a key factor determining the impact the hegemon has on the international economic system. In other words, the stability of the international economic order within a hegemonic power structure depends on the policy preferences of the hegemon. Broadly speaking, the hegemon’s policy preferences may prioritize the international goal of maintaining international economic stability or focus on the domestic goal of maintaining domestic economic stability. If the hegemon exercises its power prioritizing domestic goals over international ones, international economic instability will deepen. Just as non-hegemonic instability exists due to the absence of a hegemon, there is also hegemonic instability caused by the policies of the hegemon.

In fact, since the 1980s, much of the instability in the international economy has not been caused by the absence of a hegemon but by the policies of the hegemon, the United States. For example, during the 2008 global financial crisis, the United States played the role of an international lender of last resort by easing liquidity crises in various countries through currency swaps, contributing to maintaining international economic stability to some extent. However, after the 2008 financial crisis, international exchange rate and financial instability were also caused by U.S. monetary policies, represented by quantitative easing. In other words, the hegemon can contribute to maintaining international economic stability but can also be a cause of instability.

Currently, many people’s attention is focused on who will be the winner in the U.S.-China hegemonic competition and the possibility of an international hegemonic transition. However, a more important issue than the current hegemonic competition is for the international community to establish international rules and institutions that can influence the policy preferences of the hegemon to prevent hegemonic instability.

Jae-Hwan Jeong, Professor, Department of International Relations, Ulsan University

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