The Downfall of the American Order? by Peter J. Katzenstein

Author:Peter J. Katzenstein
Language: eng
Format: epub
Publisher: Cornell University Press
Published: 2022-02-20T00:00:00+00:00

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POST-AMERICAN MOMENTS IN CONTEMPORARY GLOBAL FINANCIAL GOVERNANCE

Ilene Grabel

The American-led international economic order that emerged from World War II featured the dominance of embedded liberal ideas and practices.1 This first American-led order involved, inter alia, a unipolar global financial governance architecture organized around the dollar and the Bretton Woods institutions (BWIs) and wide consensus around Keynesian principles of economic management. The order featured domestic and international economic arrangements designed to promote growth, along with mechanisms to protect domestic policy objectives (and the domestic economy itself) from external pressures and volatility—especially those emanating from the financial sector.2 The ambitions and compromises at the heart of this order reflected the widely held view, cemented during World War II, that economic nationalism was untenable and dangerous. The way forward required cooperation and multilateralism as cornerstones of economic restoration and international peace.3 The multilateralism was permissive, providing space for cross-national domestic policy heterogeneity. Indeed, the agreement to disagree on matters of domestic policy was hardwired into the system through Article IV of the newly created International Monetary Fund (IMF).

The second American-led international order was characterized by the displacement of Keynesian sensibilities by the neoliberal doctrine of Milton Friedman and Friedrich Hayek. The order reified markets and diminished the role of the state as an economic actor and protector while installing a restrictive multilateralism that promoted convergence to US policy and institutional norms. The neoliberal order placed a straightjacket on national policy autonomy. The emergent neoliberalism reinforced existing US-led financial unipolarity in ways that amplified the role and power of the BWIs and US-based financial actors and interests. With notable exceptions, this order promoted the primacy of the hyper-liberalized American financial model as the global ideal. It dismantled embedded liberalism where its foundations were weakest and put it on the defensive elsewhere.

A series of financial crises exposed internal contradictions in the neoliberal order. Unlike the demise of the first order, the crises of the 1990s and the global crisis of 2008 (hereafter “global crisis”) threatened not just the predominant economic model but also the centripetal force of the global financial governance architecture. The global crisis generated contradictory effects on the global financial governance architecture and on neoliberalism, deepening fissures in the US-led regime while also reinforcing the central role of the United States.

But where does this leave us? The best that can be said is that we are in an interregnum in which there is no consensus among economists and policymakers, no coherent, singular “ism” to guide policy formation, nor even a set of contending coherent systems of economic arrangements. Instead, we confront the simultaneous proliferation of a range of regimes that include kleptocratic capitalism, state capitalism, social democratic multilateralism, neoliberal nationalism, neonationalism, and what I call below “embedded populism.”4 An expanded set of diverse actors and institutions has joined the conversation in global economic governance, pushing forward with ambitious new institutions and initiatives. Many are encouraging; others certainly are not. Some of the initiatives threaten existing arrangements, while others mimic practices pioneered by established actors and institutions.

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