¹ See, in particular, Kindleberger, Charles P., The World In Depression, 1919–1939 (Berkeley: University of California Press, 1973)Google Scholar, and “Dominance and Leadership in the International Economy,” International Studies Quarterly 25 (June 1981), 242–54; Krasner, Stephen D., “State Power and the Structure of International Trade,” World Politics 28 (April 1976), 317–47CrossRefGoogle Scholar; Gilpin, Robert, U.S. Power and the Multinational Corporation (New York: Basic Books, 1975)CrossRefGoogle Scholar, War and Change in World Politics (New York: Cambridge University Press, 1981)Google Scholar, and The Political Economy of International Relations (Princeton: Princeton University Press, 1987)Google Scholar.

² See Conybeare, John, “Public goods, Prisoners' Dilemmas and the International Political Economy,” International Studies Quarterly 28 (March 1984), 5–22CrossRefGoogle Scholar, and Trade Wars (New York: Columbia University Press, 1988), esp. chap. 3; Stein, Arthur, “The Hegemon's Dilemma: Great Britain, the United States and the International Economic Order,” International Organization 38 (Spring 1984), 355–86CrossRefGoogle Scholar.

³ See Jack Gallagher and Ronald Robinson, “The Imperialism of Free Trade,” Economic History Review, 2nd ser., No. 6 (1953), 1–15.

⁴ See Gilpin (fn. 3, 1987), chap. 3, esp. p. 78.

⁵ This issue is central to the work of Keohane, Robert, particularly After Hegemony: Cooperation and Discord in the World Political Economy (Princeton: Princeton University Press, 1984)Google Scholar; Snidal, Duncan, “The Limits of Hegemonic Stability Theory,” International Organization 39 (Autumn 1985), 579–614CrossRefGoogle Scholar; Lake, David, Power, Protection and Free Trade: International Sources of U.S. Commercial Strategy, i88j-iai<) (Ithaca, NY: Cornell University Press, 1988)Google Scholar.

⁶ See Rogowski, Ronald, “Political Cleavages and Changing Exposure to Trade,” American Political Science Review 81 (December 1988), 1121–38CrossRefGoogle Scholar.

⁷ This, however, is not Kindleberger's interpretation. The game he envisions involves the leader playing Stag Hunt against the free rider's Prisoners' Dilemma. The leader does not defect; he keeps his markets open, regardless of what the free rider does.

Game of Stag Hunt Vs. Prisoner's Dilemma

* Dominant outcome

One should be aware, however, that while this matrix makes the continued C,D outcome “rational,” it may not in fact be the game that the participants are playing. In other words, they may misunderstand the true nature of the game.

⁸ After all, acting in its own self-interest, a second state will generally choose the “preferred” over the “non-preferred” alternative. In Schelling's original formulation, which Snidal employs, Schelling makes it clear that the cooperative choice is also the “non-preferred” choice. See the chapter entitled “Hockey Helmets, Daylight Saving, and Other Binary Choices,” in Schelling, Thomas C., Micromotives and Macrobehavior (New York: W. W Norton 1978), 211–43Google Scholar.

⁹ Duncan Snidal (fn. 5), 601.

¹⁰ Howard Raiffa quite rightly refers to such cooperative behavior against self-interest as “noble.” Raiffa, See, The Art and Science of Negotiation (Cambridge: The Belknap Press of Harvard University Press, 1985)Google Scholar.

¹¹ Stein (fn. 2), 358.

¹² See the discussion in Caves, R. E. and Jones, R. W., World Trade and Payments, 2nd ed. (Boston: Little, Brown, 1977), 179Google Scholar.

¹³ Conybeare (fn. 2, 1988), 67–68.

¹⁴ In other words, Kindleberger's combination of Stag Hunt and Prisoners' Dilemma does not generally describe the leader's incentives.

¹⁵ See Gilpin (fn. 1, 1987), at 5 and 340; also Gilpin (fn. 1, 1981). The situation depicted in the U.S. case, however, is changing. With the passage of the Omnibus Trade Act of 1988, the United States is responding to the tariffs of other states and seeking to negotiate them downward. One should also recognize that “hegemonic burdens” were by no means the only cause of decline. In the case of Britain, decline began long before the military burdens began to accumulate.

¹⁶ Mitchell, Brian R. and Deane, Phyllis, Abstract of British Historical Statistics (Cambridge: Cambridge University Press, 1971)Google Scholar. British accounts were in overall surplus during this period, however, because of the returns from invisibles—shipping, insurance, financial services, and income on foreign investments.

¹⁷ The literature on this point is extensive, but see the citations below.

¹⁸ Wilson, Charles, Economic History and the Historian: Collected Essays (London: Weiden-feld & Nicolson, 1969), 40–41Google Scholar.

¹⁹ Kennedy, Paul, The Rise and Fall of the Great Powers: Economic Change and Military Conflictfrom 1500–2000 (New York: Random House, 1987)Google Scholar; also Friedberg, Aaron, The Weary Titan: Britain and the Experience of Relative Decline, 1805–1905 (Princeton: Princeton University Press, 1988), esp. chap. 2Google Scholar.

²⁰ Quoted in Kennedy (fn. 19), 229.

²¹ Mackinder, , “The Geographical Pivot of History,” Geographical Journal 23 (1904)CrossRefGoogle Scholar.

²² The amount of literature and debate on the “decline issue” is now going off the charts, but see particularly Gilpin (fn. 2, 1987); Kennedy (fn. 19); Huntington, Samuel P., “The U.S.—Decline or Renewal?” Foreign Affairs 67 (Winter 1988/1989), 76–96CrossRefGoogle Scholar; Joseph S. Nye, Jr., “Understanding U.S. Strength,” Foreign Policy, No. 72 (Fall 1988), 105–29; Rostow, W. W., “Beware of Historians Bearing False Analogies,” Foreign Affairs 66 (Spring 1988), 863–68CrossRefGoogle Scholar.

²³ See, inter alia, Kennedy (fn. 19); Prestowitz, Clyde V. Jr., Trading Places: How We Allowed Japan to Take the Lead (New York: Basic Books, 1988)Google Scholar; Charles Doran, “Systems in Crisis,” mimeo (Baltimore: Johns Hopkins University, 1989); Thurow, Lester, The Zero Sum Solution: Building a World-Class American Economy (New York: Simon & Schuster, 1985)Google Scholar; Gilpin (fn. 1, 1987); Cohen, Stephen S. and Zysman, John, Manufacturing Matters: The Myth of the Post-Industrial Society (New York: Basic Books, 1987)Google Scholar; Scott, Bruce and Lodge, George C., eds., U.S. Competitiveness in the World Economy (Boston: Harvard Business School Press, 1985)Google Scholar; and a host of other writings.

²⁴ See Richard Rosecrance, “Hoist with Our Own Hegemony,” New York Times Book Review, August 16, 1987, p. 22; also Stein (fn. 2). The absolute gains were still striking. P. T. Ellsworth records British 19th-century economic progress in the following terms:

Thus although the export of cotton thread and yarn was about the same in 1909 as in 1870 in physical volume, that of piece goods nearly doubled. Britain's share of the world trade in cotton manufactures, which she had dominated before 1870, was still 57 per cent in 1913. As for machinery, although in 1880–84 the United Kingdom had contributed 64 per cent of the exports of the four leading countries, and this had shrunk to 34 per cent in 1909–13, yet the absolute value of these exports had risen from £11.5 million to £32, or nearly threefold. Again, British shipbuilders had constructed four-fifths of the world's gross tonnage in the early nineties, with an annual output of a million tons; in 1910–14 their share was still three-fifths, and their annual production considerably larger, at 1.66 million tons. In general, though the United Kingdom had suffered a relative decline in the world position of her leading industries, coal, iron and steel and machinery, textiles and shipbuilding, as well as in her exports, and even an absolute decline in some exports, nonetheless all industries had increased their output and most their exports. Ellsworth, , The International Economy: Its Structure and Operation (New York: Macmillan, 1950), 421–22Google Scholar.

²⁵ Prestowitz (fn. 23), 308–311.

²⁶ Scott and Lodge (fn. 23), 98–99; emphasis in original.

²⁷ See Ronald Morse, “Japan's Drive to Pre-Eminence,” Foreign Policy, No. 69 (Winter 1987–88), 3–21; Johnson, Chalmers, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–71 (Stanford, CA: Stanford University Press, 1982)Google Scholar, “The Japanese Political Economy: A Crisis in Theory,” Ethics and International Affairs 2 (1988), 79–97CrossRefGoogle Scholar, and The End of American Hegemony and the Future of Japanese-American Relations (La Jolla: University of California Press, San Diego, 1988)Google Scholar; Hofheinz, Roy Jr., and Calder, Kent E., The Eastasia Edge (New York: Basic Books, 1982)Google Scholar; Calder, Kent E., “Japanese Foreign Economic Policy formation: Explaining the Reactive State,” World Politics 40 (July 1988), 517–41CrossRefGoogle Scholar. The best-known book in this genre is probably Vogel, Ezra F., Japan as Number 1: Lessonsfor America (New York: Harper Colophon Books, 1979)CrossRefGoogle Scholar.

²⁸ See, in particular, Lincoln, Edward, Japan: Facing Economic Maturity (Washington, DC: Brookings Institution, 1988), 212–30Google Scholar.

²⁹ No one could assert that Japan was enthusiastic about the so-called endaka (high yen) problem. As Chalmers Johnson put it, “In a sense Japan had no choice but to go along with the Plaza Accord because for the previous five years it had been excusing its own huge surplusses by saying that they were caused by the overvalued dollar.” (Letter to the authors, August 26, 1988.) Unless this argument is taken in a broad negotiating context in which Japan responds to the arguments and pressures of other states, however, such agreement was not in Japan's interest.

³¹ Tetsuo Kondo (member of the Diet and former Minister of State for Economic Planning), “Japan's New Financial Strategy and the International Debt Problem,” lecture at The Wilson Center of the Smithsonian Institution, Washington, DC (May 3, 1988).

³² Ibid., 3.

³³ In this instance, the game cannot be a simple one of Prisoners' Dilemma, but instead resembles the Stag Hunt versus Prisoners' Dilemma game that underlay Kindleberger's formulation. However, it is the small state that automatically cooperates and the optimum-tariff hegemon that defects and obtains free-rider benefits.

³⁴ The case of the large hegemonic power confronting small rivals may never occur in the future. In the two cases we delineate below (Britain before the mid-1840s, and the United States in 1945–1947), there were no true industrial competitors. Britain was initially the only industrial nation, and at the end of World War II, all of America's competitors had been put out of business temporarily. Future hegemons will rise to power in a context already well populated with strong industrial competitors. The situation depicted by John Conybeare may therefore not recur.

³⁵ For this reason, as we shall see below, an incipient hegemonic power may no longer be able to act like a predatory hegemon.

³⁶ This situation was the diametric opposite of that usually assumed in the early post-World War II period when, if the United States sneezed, Europe caught pneumonia.

³⁷ Has something changed in international politics that allows the United States to bargain strategically with its trading partners though Britain could not? We cannot be sure. But it is perhaps significant that the ideology of free trade was much more entrenched in the United Kingdom at the beginning of the 20th century than it is in the United States today. See Friedberg (fn. 19); Snidal (fn. 5).

³⁸ “Computer Recreations,” Scientific American 251 (December 1984), 14–24.

³⁹ Kondo (fn. 31), 5.

⁴⁰ Typical Japanese pension funds lost about 24% on their investment in the U.S. money and stock market during 1987.

⁴¹ Kondo (fn. 31), 11.

⁴² Quoted by Pyle, Kenneth, “Japan, the World, and the Twenty-first Century,” in Inoguchi, Takashi and Okimoto, Daniel, eds., The Political Economy of Japan, Vol. 2: The Changing International Context (Stanford, CA: Stanford University Press, 1988), 485Google Scholar.

⁴³ See Murphy, , “Power without Purpose: The Crisis of Japan's Global Financial Dominance,” Harvard Business Review 2 (March-April 1989), 71–83Google Scholar.

⁴⁴ Kent Calder argues: “The growing role of Japan in the international financial system, as the world's largest exporter of capital, has brought about sharply increased prosperity and influence for Japanese financiers domestically; it has also given these financiers an expanded stake in a stable international monetary regime.” Calder (fn. 27), 540.

⁴⁵ See Doran (fn. 23), and Doran, Charles and Parsons, Wes, “War and the Cycle of Relative Power,” American Political Science Review 74 (December 1980), 947–65CrossRefGoogle Scholar.

⁴⁶ This conclusion is of course subject to the uncertainties of strategic bargaining. If the leader could extract high payments from others before committing its own cooperation, the deficiencies of hegemony could conceivably be remedied. So far, no hegemon has been able to produce this favorable result.