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Interdependence: Myth or Reality?

Published online by Cambridge University Press:  18 July 2011

Richard Rosecrance  and
Arthur Stein
Richard Rosecrance
Affiliation:
Cornell University
Arthur Stein
Affiliation:
Cornell University, Yale University
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Extract

One of the uncertainties of modern international relations is the degree of interdependence among states. Some theorists have asserted that interdependence is high and/or growing, and others have maintained that it is low and/or declining. Essentially, the debate about interdependence has proceeded in three separate phases, (i) In the aftermath of World War II, technology was heralded as the stimulus to an interrelationship among states: The world was shrinking; technological, military, and economic factors would produce interdependence even among erstwhile enemies. (2) Later this conventional wisdom was challenged by Karl Deutsch and his associates, who purported to show that various economic indicators of external reference were declining. International transactions were lessening relative to intranational transactions. More and more, citizens were turning to the nation-state for the satisfaction of their needs, and national economies were taking precedence over the previous international economy of the nineteenth century. This theme has recently been powerfully reinforced by Kenneth Waltz. (3) In reaction to the claims of the Deutsch group, which initially predicted stalemate in European unification efforts and a greater autarchy for industrial states, new presentations of the argument in favor of interdependence have been made. According to this view, interdependence among states is certainly increasing. A symposium on the international corporation partly reinforces Deutsch's view, while one on transnational processes argues against it. The resultant of these theoretical vectors remains uncertain. In this essay we hope to offer new data and to provide a modest reconciliation of the contending claims, drawing a trial balance between them.

Type
Research Article
Information
World Politics , Volume 26 , Issue 1 , October 1973 , pp. 1 - 27
Copyright
Copyright © Trustees of Princeton University 1973

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References

1 See inter alia, Reves, Emery, The Anatomy of Peace (New York 1946), 268Google Scholar.

2 See particularly, Deutsch, Karl W., Edinger, Lewis J., Macridis, Roy C., and Merritt, Richard L., France, Germany and the Western Alliance (New York 1967Google Scholar), chap. 13.

3 Waltz, Kenneth N., “The Myth of Interdependence,” in Kindleberger, Charles P., ed., The International Corporation (Cambridge, Mass. 1970Google Scholar).

4 See Morse, Edward L., “Transnational Economic Processes,” in Keohane, Robert O. and Nye, Joseph S. Jr., eds., Transnational Relations and World Politics (Cambridge, Mass. 1972Google Scholar); Morse, , “The Politics of Interdependence,” International Organization, xxiv (Spring 1969Google Scholar); Young, Oran R, “Interdependencies in World Politics,” International Journal, xxiv (Autumn 1969Google Scholar); and Cooper, Richard N., The Economics of Interdependence (New York 1968Google Scholar).

5 See Keohane and Nye (fn. 4); Kindleberger (fn. 3).

6 This meaning is close to that suggested by Morse and Young. Morse writes: “Interdependent behavior may be understood in terms of the outcome of specified actions of two or more parties (individuals, governments, corporations, etc.) when such actions are mutually contingent.” Morse, “Transnational Economic Processes” (fn. 4), 29. See also Young (fn. 4), 726.

7 See Cooper (fn. 4), 59.

8 See also Tollison, Robert D. and Willett, Thomas D., “International Integration and the Interdependence of Economic Variables,” International Organization, XXVII (Spring 1973). 255CrossRefGoogle Scholar–71.

9 See Waltz (fn. 3), 205–7.

10 Ibid., 205.

11 Olson, Mancur Jr., and Zeckhauser, Richard, “An Economic Theory of Alliances,” in Russett, Bruce M., ed., Economic Theories of International Politics (Chicago 1968Google Scholar).

12 This approach is that of the Heckscher-Ohlin theorem emphasizing factor proportions.

13 Interdependence may also increase due to scientific and technological developments. See Skolnikoff, Eugene B., The International Imperatives of Technology (Berkeley, Institute of International Studies, No. 16, 1972Google Scholar); see also his “The International Functional Implications of Future Technology,” prepared for delivery at the 66th Annual Meeting, American Political Science Association, Los Angeles, September 8–12, 1970; Ruggie, John Gerard, “Collective Goods and Future International Collaboration,” American Political Science Review, LXVI (September 1972), 874CrossRefGoogle Scholar–93; Dunning, John H., “Technology, United States Investment, and European Economic Growth,”Google Scholar in Kindle-berger (fn. 3).

14 Deutsch, Karl W. and Eckstein, Alexander, “National Industrialization and the Declining Share of the International Economic Sector, 1890–1959,” World Politics, xiii (January 1961), 267CrossRefGoogle Scholar–99.

15 See also Lipsey, Robert E., Price and Quantity Trends in the Foreign Trade of the United States (Princeton 1963), 39–44Google Scholar.

18 There are no criteria by which to decide which ratio of foreign trade to GNP is more valid, the one based on current dollars or the one based on constant dollars. In its limiting case, the ratio based on current dollars would go to zero, and it would be irrelevant to point out that in constant dollars there was still some foreign trade of consequence. (We are indebted to Richard N. Cooper for this point.) However, in the Deutsch-Eckstein case, where even in current dollars the ratio for the 1950's was relatively high, it is more illuminating to look at ratios based on constant dollars.

17 The following table gives an indication of this phenomenon for the last decade:

18 See Lipsey (fn. 15), 430–31. This table is constructed using Kuznets' estimate of the U.S. Gross National Product. Because the Kuznets estimates deflate GNP, official statistics cannot be used to extend the Kuznets series.

19 Source: United States Government, Economic Report of the President (1972). The lower ratios in this table are due to the use of official (undeflated) GNP indices.

20 Deutsch and Eckstein (fn. 14), 271.

21 See Waltz (fn. 3), 210.

22 Source: International Bank for Reconstruction and Development, Trends in Developing Countries (Washington, D.C. 1971). Beginning in 1955, petroleum is included as Section 3 of the Standard International Trade Categories. Data exclude trade among Communist countries. It is interesting to compare these results with those offered by Hirschman, Albert O., National Power and the Structure of Foreign Trade (Berkeley 1945), 141Google Scholar–45: H e found either no percentage increase in manufacturing trade as a proportion of the total, or a slight decline for major powers from 1913 to 1937. Longer-term figures, however, point to secular increases since 1954.

23 United Nations, Yearbook of International Trade Statistics 1954 and 1968 (New YorkGoogle Scholar 1955 and 1970).

24 Source: Trends in Developing Countries (fn. 22).

25 See Hirschman (fn. 22), 98–100.

26 Michaely, Michael, “Concentration of Exports and Imports,” Economic Journal Lxviii (December 1958), 722CrossRefGoogle Scholar–36.

27 1954 data based on Michaely, ibid.; 1968 data computed using D.o.T. totals from International Monetary Fund and International Bank for Reconstruction and Development, The Direction of Trade Annual 1966-70 (Washington 1971Google Scholar).

28 Source: Yearbook, of International Trade Statistics 1961 and 1968 (fn. 23).

29 On balance, the foreign-trade sector does not appear to be quite as useful for the measurement of relative interdependence as previous analysts have maintained. Although foreign trade is increasing relatively and absolutely among developed countries, that trade represents an exchange of manufactured goods. As a number of economists have pointed out, if governments can find substitutes for import or export markets among a few industrial countries, the growing effects of concentration do not necessarily increase interdependence. But even if substitutability exists economically, the problems of the political costs of switching from one market to the other and of the circumscription of political latitude involved in the process remain. For the latest review of the literature on trade as a measure of integration, and an excellent bibliography, see Clark, Cal and Welch, Susan, “Western European Trade as a Measure of Integration: Untangling the Interpretations,” Journal of Conflict Resolution, xvi (September 1972), 363CrossRefGoogle Scholar–82. Integration theorists might find it useful to examine other transnational economic sectors as well as trade, including those discussed below. One such attempt is outlined in Tollison and Willett (fn. 8).

30 Kenneth Waltz notes, for example, that “in 1910, the value of total British investment abroad was 1½ times larger than her national income”; for the United States today, however, it is a meager 18%. Waltz (fn. 3), 215.

31 See Cooper (fn. 4), chaps. 3, 4, and 5; Morse, “Transnational Economic Processes” (fn. 4), 36–37.

32 Bloomfield, Arthur, Patterns of Fluctuation in International Investment before 1914 (Princeton Studies in International Finance, No. 21, 1968), 3–4Google Scholar.

33 Ibid., 2–3.

34 See Tables D and E of the Appendix.

85 Source: U.S. Department of Commerce, U.S. Business Investments in Foreign Countries (Washington, D.C. 1960Google Scholar), 92. Figures since 1959 would probably indicate an even higher degree of concentration, but Department of Commerce statistics no longer give country-by-country breakdowns of investment figures.

36 It could of course be argued that a reduction in the number of suppliers or buyers does not necessarily raise the costs of such transactions to the United States. A few sources may be cheaper than many sources. But the circumscription does diminish U.S. political initiative; it narrows America's political latitude and thus links her interests more closely with the remaining sources of supply or markets.

37 Sources: U.S. Business Investments in Foreign Countries (in. 35), 92; Survey of Current Business, L (October 1970), 28; Economic Report of the President, 1972 (fn.) 59

38 Ibid.

39 See Table F of the Appendix.

40 See Table G of the Appendix.

41 This figure of 28% would be even higher if income from other (non-direct) foreign private assets had been included.

42 Brown, Lester R., ‘The Nation State, the Multi-National Corporation and the Changing World Order,” mimeo (U.S. Department of Agriculture, 1968Google Scholar), quoted in McHale, John, The Transnational World (Austin 1969), 8Google Scholar.

43 Vernon, Raymond, Sovereignty at Bay (New York 1971), 383Google Scholar.

44 See Bloomfield (fn. 32), 87.

45 See Lawrence Krause, “Private International Finance,” in Keohane and Nye (fn. 4), 181–83.

46 New York Times, July 19, 1972.

47 See Strange, Susan, “The Dollar Crisis: 1971,” International Affairs, XLVIII (April 1972). 194.Google Scholar

48 See Bloomfield (fn. 32), 7.

49 Ibid., 7. Peter Lindert disputes the traditional wisdom (and Arthur Bloomfield) by claiming that foreign currencies were used fairly extensively. However, even Lin-dert's data for 1913 show that only $1132 million were held in foreign-exchange reserves, which is 15.9% of the total world reserves. H e also concurs that more than half of these official foreign balances were held in Russia, India, and Japan. See Peter H. Lindert, Key Currencies and Gold, 1900-1913 (Princeton Studies in International Finance, No. 24, 1969), 12, 13, 76, 77.

50 See Brzezinski, Zbigniew, Between Two Ages (New York 1970Google Scholar), Parts II-III.

51 Waltz (fn. 3), 208.

52 Kaiser, Karl, “Transnational Politics: Toward a Theory of Multinational Politics,” International Organization, xxv (Autumn 1971), 812Google Scholar.

53 Ibid.

54 Ibid., 811–12; Morse, “Transnational Economic Processes” (fn. 4), 44–45.

55 See Susan Strange (fn. 47), 215; Morse, Edward L., “Crisis Diplomacy, Interdependence, and the Politics of International Economic Relations,” World Politics, xxrv (Spring 1972 Supplement), 123CrossRefGoogle Scholar–50. As many have noted, one response to the failure of agreed currency values could be to move to freely floating exchange rates. So far, however, there is little evidence that nations would not try to extract the maximum national leverage from such a situation. After August 15, 1971 and after the failure of the Smithsonian Agreement, many nations engaged in “dirty floating,” supporting the dollar and preventing their own currencies from rising to market level.