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Realism, Liberalism, and Corporatism

By James H. Nolt

Last week I discussed why deflationary problems in the world economy today are even more difficult to solve than deflation during past debt-deflation crises, such as those during the later 19th century and the Great Depression of the 1930s. I explained how finance, sometimes supplemented by governments, as during the Great Depression, promoted cartels and other forms of monopoly power as a way to fight deflation and thereby better enable indebted companies to service their debts, rather than bankrupting most insolvent debtors and suffering capital losses from loan defaults.

I ended on a political note suggesting that the globalized world economy of today is different. One way to understand the difference is to consider international relations theories. Most international relations textbooks teach at least two competing orthodox theories: realism and liberalism, which is also known as idealism. Many name a third perspective, but characterize or label it differently. I prefer to call that alternative, which corresponds with my own view, corporatism. I detail it in my book, International Political Economy: The Business of War and Peace.

Realism is the belief that international relations is largely about the interaction of independent states acting as self-sufficient powers in their own interest. Its key concepts include national interest, international anarchy, and balance of power. National interest is presumed to be fairly obvious and uncontested. The only question is the correct strategy to achieve it. International anarchy is the argument, first popularized by English philosopher Thomas Hobbes during the 17th century, that whereas within states a government with sovereign power enforces some degree of law and order, the international system is characterized by anarchy and violence. Among nations there is no rule of law; only power matters. The power that matters most is the military might of nations. Balance of power is the best hope for peace, since governments will be less prone to war if their power is balanced by the power of rivals.

Realism is applied to economic situations too, like the dumping and cartel issues I discussed in my last blog. Realists argue that state power critically influences issues like the balance of trade. Powerful states allegedly take advantage of weak states not only in military rivalries, but also in the economic arena. Donald Trump, in his public rhetoric around economic issues like trade, immigration, and China’s supposed currency manipulation, uses arguments that presume a realist view of the role of national power in issues of economic prosperity.

Liberal international relations theory counters realism with arguments that many economic issues involve interdependence and mutual benefit. If both sides can benefit from cooperation, then power matters less. Diplomacy, international law, and international organizations such as the United Nations and the European Union are more important in liberal theory because they represent the success of cooperative organization of international relations. Rather than taking for granted that the world must be an arena of endless conflict, international relations liberals (not necessarily the same as liberals in domestic politics) believe that international anarchy can be overcome by international law and organization. Liberals generally favor freer trade and some system of international monetary cooperation to stabilize currency exchange rates. They also favor collective security against “rogue states” that would resort to war, terrorism, or threats of violence rather than embracing cooperation. Whereas realism sees state violence as the norm, liberalism views it as a pathological exception to be isolated, sanctioned, and constrained by the mainstream majority of the international community.

My approach, corporatism, rejects both of these as one-sided and deluded about major aspects of the international system. Corporatism emphasizes that capitalism is a polarizing system that divides interests into opposing parties, just as James Madison recognized. Private power matters for international relations, not just state power. There is no one economic policy or any one pattern of institutionalized cooperation that satisfies all interests. Every pattern of cooperation creates its own opposition.

For example, the worldwide movement toward the gold standard as the world monetary system in the 1870s and again in the 1920s strongly favored bears and creditors and disadvantaged bulls and debtors, as I discuss in chapters nine and ten of my book. Today there is a vigorous debate between business internationalists who favor multilateral trade treaties like the Trans-Pacific Partnership (TPP) and proposed Transatlantic Trade and Investment Partnership (T-TIP) and others who oppose them on various grounds. In general, realists typically see agreements like these as necessarily favoring some countries at the expense of others. Liberals seem them as generally beneficial to international cooperation and prosperity. Corporatists like me recognize that within every country there are winners and losers. Many trade-competitive businesses, international investors, and global monopolists will certainly benefit from these trade agreements, but others will be disadvantaged. Contrary to liberalism, political economy polarizes—not just between nations, as in realism, but within nations as well.

Liberals are generally optimistic about the prospects of international cooperation and its fruits. Realists are generally suspicious, concerned with whether their nation is getting its fair share of any deal. Corporatists argue that any economic policy creates winners and losers. Which side you are on depends on your values and interests.

Returning to last week’s problem of worldwide deflationary pressures: the cooperative solution of liberals generally will not work because there are too many parties who cannot agree and cannot be forced to cooperate. In fact, cooperation among creditors is strong but merely shifts the burden onto debtors, as in Greece, further polarizing politics. The reaction has been anti-establishment political movements breaking out all over the world. Among other things, the anti-establishment interests are opposed to the current deadlock in world political economy between two opposing tendencies. On the one hand, the power of creditors and their allies in governments around the world have largely foreclosed solutions that would grant debt relief at the expense of creditors. On the other hand, public and private debt are accumulating at alarming rates because it is very cheap now and puts off more painful adjustment to the consequences of worldwide economic slowdown. The problems of a liberal, globalized world economy are not being solved by cooperation; they are just accumulating until the polarization between insider creditors and outsider debtors, between rich and poor, between bears and bulls, becomes so intense and unavoidable that the delicate balance of opposing interests breaks down.

The American presidential election this year is one of many illustrations of the extreme polarization developing between opposing interests. I will examine this in detail next week now that the primary elections are winding to a close.

*****

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James H. Nolt is a senior fellow at World Policy Institute and an adjunct associate professor at New York University.

[Photo courtesy of East Asia and Pacific Media Hub U.S. Department of State]

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