By Julian Strachan ’16 Originally written and published in the 2013-4 edition of the Meridian Journal
In Robert O. Keohane and Joseph S. Nye’s book entitled, Power and Interdependence, the terms “sensitivity,” and “vulnerability” are expressed as ideas surrounding the ability of a state to influence its own affairs within the framework of an interdependent relationship. Sensitivity, “involves degrees of responsiveness within a policy framework—how quickly do changes in one country bring costly changes in another, and how great are the costly effects.” Vulnerability can be described as, “the relative availability and costliness of the alternatives that various actors face.” In more distilled terms, sensitivity is used to describe the pressures faced by various State actors as the result of others’ actions, while vulnerability is how open their options are to changing the processes and framework of their own structure to suit their needs. While Keohane and Nye claim that, “we must be careful not to define interdependence entirely in terms of situations of evenly balanced mutual dependence,” noting that strong economic, political, and military powers can be interdependent with smaller powers, it is hard to make the claim that these smaller powers do not struggle more often with the effects of sensitivity and vulnerability. Because of the pressure from international organizations such as the International Monetary Fund to press weaker economic powers towards adopting a more liberal economic policy, smaller states find themselves more sensitive and vulnerable to changes in the world than larger states do.
By definition, adopting liberal economic policies is relinquishing direct control over aspects of a state’s economy. It is a promise to abide by the norms of international regimes in return for the benefits that these organizations provide. Most often the call is for free trade, a hands-off approach for a state that hedges loss in overall control of national and international markets against the gains of freely moving labor and currency. These regimes however have been set-up with the interest of the world powers in mind; and states like France, England, and the United States have had a very explicit desire to remove all barriers to trade because the cost is imperceptible compared to the profits derived from these very agreements. When looking at the US it immediately becomes clear, that although Washington may have a very liberal economic policy, the US is not very sensitive or vulnerable to outside economic forces. Sensitivity and vulnerability however must be taken as comparisons rather than absolute numbers. Keohane and Nye note in 1971, “The United States was less sensitive than Japan to petroleum price rises…but as rapid price increases and long lines at gasoline stations showed, the United States was indeed sensitive to the outside change.” The US has an outstanding diversification of products and resources. However,owever this has led to the ability to rapidly adapt to changes when confronted with adversity. Smaller nations face a crisis of identity when dealing with international regimes such as the IMF. The practical decision to abide by the rules and regulations of the liberal agenda and forgo their natural, sovereign rights has a huge bearing on a small state’s ability to avoid rapid backlash in the event of an economic, political, or social event. It begs the question if it is advantageous for these states to lose out on a large amount of sovereignty for the benefits of free trade. most economists would agree that this is in fact the case, especially in the case of the IMF and other liberal organizations. The ability to have an international lender available reduces the strain on individual states that lack theability to obtain the resources vital to operation of their nation. It spurs investment in infrastructure rather than enables a short-term, or costly decision like conflict. Within the world of international trade, in theory, absolute gains are always positive for every state actor. The difference between economic powerhouses and smaller nations however is the relative tradeoff of sensitivity and vulnerability to economic gains. The relative trade-off for smaller states is much greater than their economically stronger partners and it comes down to a matter of diversification. This idea comes back to the previously discussed issue of oil in the US. The US does not rely on a single state to provide its oil. Instead, it produces much of its own oil, and even in the case of a sudden decline on oil supply, such as an embargo, there is no single way to completely sever the US from some degree of oil production. In addition to this, because of oil trade in dollars, the US continues to have a profit net gain within the oil market. In this way the dependence on larger states acts as a web. Severing a single strand of the web does not have a great effect because each individual strand shares the burden. It can then be extrapolated that larger states enter trade agreements as a matter of profitability, not of necessity. Diversification of trading partners is key in sensitivity to individual trading partners. Less economically powerful states do not have the same luxury of picking and choosing their trading partners because of their lack of self-production and diversified resources. It can be concluded that free trade and liberal economic policy helps these smaller states economically, although it also greatly reduces their capability to recover from shocks in the market because, unlike the greater powers, the web has a limited number of strands in the first place. It should be noted that this thesis relies on assumption that free trade is mutually beneficial to all countries in question, and is the basis of this examination. When put into the perspective of sovereignty it seems almost crazy that a state would be willing to sacrifice control over potential growth but that is the world of today. Simply put, a smaller economic state is more dependent on its larger trading partners than the larger trading partners are on the smaller state. It could almost be described as a luxury for the larger state to be interdependent with the smaller state, while the other way around begs necessity. The buy-in to participate with these markets more largely affects these smaller states as they constitute a greater portion of their overall gains than the economically better off states. That buy-in is greater sensitivity to other nations’ choices and greater vulnerability by agreeing to not use certain methods as described by the international regime they are beholden to. Robert O. Keohane and Joseph S. Nye, Power and Interdependence: Third Edition (New York: Longman, 2000) Julian Strachan is majoring in International Affairs