The Kindleberger Trap

From Joseph S. Nye, Professor, Harvard University:

As US President-elect Donald Trump prepares his administration’s policy toward China, he should be wary of …. the “Kindleberger Trap”: a China that seems too weak rather than too strong.

Charles Kindleberger, an intellectual architect of the Marshall Plan who later taught at MIT, argued that the disastrous decade of the 1930s was caused when the US replaced Britain as the largest global power but failed to take on Britain’s role in providing global public goods. The result was the collapse of the global system into depression, genocide, and world war.

Today, as China’s power grows, will it help provide global public goods?

In domestic politics, governments produce public goods such as policing or a clean environment, from which all citizens can benefit and none are excluded. At the global level, public goods – such as a stable climate, financial stability, or freedom of the seas – are provided by coalitions led by the largest powers.

Small countries have little incentive to pay for such global public goods. Because their small contributions make little difference to whether they benefit or not, it is rational for them to ride for free. But the largest powers can see the effect and feel the benefit of their contributions. So it is rational for the largest countries to lead. When they do not, global public goods are under-produced. When Britain became too weak to play that role after World War I, an isolationist US continued to be a free rider, with disastrous results.

Some observers worry that as China’s power grows, it will free ride rather than contribute to an international order that it did not create.

So far, the record is mixed. China benefits from the United Nations system, where it has a veto in the Security Council. It is now the second-largest funder of UN peacekeeping forces, and it participated in UN programs related to Ebola and climate change.

China has also benefited greatly from multilateral economic institutions like the World Trade Organization, the World Bank, and the International Monetary Fund. In 2015, China launched the Asian Infrastructure Investment Bank, which some saw as an alternative to the World Bank; but the new institution adheres to international rules and cooperates with the World Bank.

On the other hand, China’s rejection of a Permanent Court of Arbitration judgment last year against its territorial claims in the South China Sea raises troublesome questions. Thus far, however, Chinese behavior has sought not to overthrow the liberal world order from which it benefits, but to increase its influence within it.

If pressed and isolated by Trump’s policy, however, will China become a disruptive free rider that pushes the world into a Kindleberger Trap?

Basically what Kindleburger described is a power vacuum, where previous hegemons — such as Britain before WWI or the US post WWII — grow too weak to enforce global standards under which the system operates. That could be trade, respect of international borders, the financial system, international law, or freedom of the seas. There is no smooth transition. When the old order breaks down, the system is likely descend into chaos for a time until a new order, with new players, is established.

Source: The Kindleberger Trap – CHINA US Focus

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