Bipolarity,Multipolarity,and Free Trade STOR Joanne Gowa The American Political Science Review,Vol.83,No.4.(Dec.,1989),pp.1245-1256. Stable URL: http://links.jstor.org/sici?sici=0003-0554%28198912%2983%3A4%3C1245%3ABMAFT%3E2.0.CO%3B2-D The American Political Science Review is currently published by American Political Science Association. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use,available at http://www.istor org/about/terms html.JSTOR's Terms and Conditions of Use provides,in part,that unless you have obtained prior permission,you may not download an entire issue of a journal or multiple copies of articles,and you may use content in the JSTOR archive only for your personal,non-commercial use. Please contact the publisher regarding any further use of this work.Publisher contact information may be obtained at http://www.jstor.org/journals/apsa.html. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. The JSTOR Archive is a trusted digital repository providing for long-term preservation and access to leading academic journals and scholarly literature from around the world.The Archive is supported by libraries,scholarly societies,publishers, and foundations.It is an initiative of JSTOR,a not-for-profit organization with a mission to help the scholarly community take advantage of advances in technology.For more information regarding JSTOR,please contact support@jstor.org. http://www.jstor.org Thu Jan1016:24:462008
Bipolarity, Multipolarity, and Free Trade Joanne Gowa The American Political Science Review, Vol. 83, No. 4. (Dec., 1989), pp. 1245-1256. Stable URL: http://links.jstor.org/sici?sici=0003-0554%28198912%2983%3A4%3C1245%3ABMAFT%3E2.0.CO%3B2-D The American Political Science Review is currently published by American Political Science Association. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/about/terms.html. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/journals/apsa.html. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. The JSTOR Archive is a trusted digital repository providing for long-term preservation and access to leading academic journals and scholarly literature from around the world. The Archive is supported by libraries, scholarly societies, publishers, and foundations. It is an initiative of JSTOR, a not-for-profit organization with a mission to help the scholarly community take advantage of advances in technology. For more information regarding JSTOR, please contact support@jstor.org. http://www.jstor.org Thu Jan 10 16:24:46 2008
BIPOLARITY,MULTIPOLARITY, AND FREE TRADE JOANNE GOWA University of Pennsylvania Iecent literature typically attributes the relative scarcity of open international markets to the prisoner's dilemma structure of state preferences with respect to trade.I argue that the prisoner's dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system:security externalities.Explicit consideration of these effects suggests that a bipolar international political system has an advantage relative to its multipolar counterpart with respect to the opening of markets among states.Less credible exit threats and stronger incentives to engage in altruism within its alliances explain the advantage of a two-power system. Lhe real income and illustrative rather than systematic em- gains that motivate free trade are also the pirical referents are used.These restric- source of the security externalities that tions are appropriate given my purpose: impede it.Their ability to internalize to demonstrate analytically the advantage these effects makes military alliances the of a bipolar international political system natural basis of agreements to open inter- with respect to free trade. national markets.The evolutionary pros- pects of alliances vary,however:ones that are the products of bipolar systems are more likely to evolve into free trade Open Markets,Prisoner's coalitions than are their multipolar Dilemmas,and State Power counterparts.I argue that less credible exit threats and stronger incentives to engage The earliest variant of hegemonic sta- in alliance altruism explain the advantage bility theory bases its representation of in- of a two-power system. ternational trade as a Prisoner's Dilemma Several important limits of the argu- (PD)on the public good literature ment should be made clear immediately.I (Kindleberger 1973).It claims that a stable argue at the systemic level:I attempt to system of international free trade involves isolate the political and economic incen- the supply of a public good.Such goods tives for free trade that occur at the level are joint in supply and nonexcludable of the international system.I do not, that is,(1)any individual's consumption therefore,consider the impact of unit- of these goods does not preclude their level factors on the pursuit of these incen- consumption by others;and (2)no indi- tives.For example,neither the role of vidual can be excluded or prevented from special interest groups nor the organiza- consuming such goods,whether he or she tion of domestic exchange via hierarchies has contributed to their production or instead of markets is considered (Doyle not.As a result,the preferences of each 1986);Frieden 1988;Ruggie 1982).The member of a large,or of any short-lived, conditions I assume are those of standard group facing a public good problem con- international trade theory (Ethier 1983), form to a PD.The corresponding payoff AMERICAN POLITICAL SCIENCE REVIEW VOLUME 83 NO.4 DECEMBER 1989
BIPOLARITY, MULTIPOLARITY, AND FREE TRADE TOANNE GOWA Recent literature typically attributes the reLaioe scarcity of open international markets to the prisoner's dilemma structure of state preferences with respect to trade. I argue that the prisoner2 dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system: security externalities. Explicit consideration of these effects suggests that a bipolar international political system has an advantage relative to its multipolar counterpart with respect to the opening of markets among states. Less credible exit threats and stronger incentives to engage in altruism within its alliances explain the advantage of a two-power system. The real income gains that motivate free trade are also the source of the security externalities that impede it. Their ability to internalize these effects makes military alliances the natural basis of agreements to open international markets. The evolutionary prospects of alliances vary, however: ones that are the products of bipolar systems are more likely to evolve into free trade coalitions than are their multipolar counterparts. I argue that less credible exit threats and stronger incentives to engage in alliance altruism explain the advantage of a two-power system. Several important limits of the argument should be made clear immediately. I argue at the systemic level: I attempt to isolate the political and economic incentives for free trade that occur at the level of the international system. I do not, therefore, consider the impact of unitlevel factors on the pursuit of these incentives. For example, neither the role of special interest groups nor the organization of domestic exchange via hierarchies instead of markets is considered (Doyle 1986); Frieden 1988; Ruggie 1982). The conditions I assume are those of standard international trade theory (Ethier '1983), and illustrative rather than systematic empirical referents are used. These restrictions are appropriate given my purpose: to demonstrate analytically the advantage of a bipolar international political system with respect to free trade. Open Markets, Prisoner's Dilemmas, and State Power The earliest variant of hegemonic stability theory bases its representation of international trade as a Prisoner's Dilemma (PD) on the public good literature (Kindleberger 1973). It claims that a stable system of international free trade involves the supply of a public good. Such goods are joint in supply and nonexcludable, that is, (1) any individual's consumption of these goods does not preclude their consumption by others; and (2) no individual can be excluded or prevented from consuming such goods, whether he or she has contributed to their production or not. As a result, the preferences of each member of a large, or of any short-lived, group facing a public good problem conform to a PD. The corresponding payoff AMERICAN POLITICAL SCIENCE REVIEW VOLUME 83 NO. 4 DECEMBER 1989
American Political Science Review Vol.83 Table 1.The Prisoner's Dilemma price of its exports-maximizes its real in- come by imposing an "optimum"tariff, Column that is,a tariff set at a level that maxi- mizes the net gain that accrues from the Row Cooperate Defect improved terms and reduced volume of Cooperate 2,2 4,1 trade.1 If optimum tariffs are used by all Defect 1,4 3,3 states,however,an individually and col- lectively suboptimal outcome results:the Note:Payoffs are ranked from 1(best)to 4(worst); volume of trade is reduced,but the terms row's payoffs are listed first. of trade do not change.2 The mutually preferred outcome of free trade is difficult to achieve because it is not a stable or matrix is illustrated in Table 1.Given Nash equilibrium of the one-shot game: these payoffs,the dominant strategy of each state is better off defecting to an opti- each player is to defect,or refuse to con- mum tariff if others do not.Thus,stan- tribute to,the supply of the public good. dard trade theory also characterizes trade This leads to an equilibrium outcome of among large states as a PD game. DD that is Pareto-inferior (i.e.,another Both the public good variant of hege- equilibrium exists in which at least one in- monic stability theory and standard inter- dividual would be better off and no one national trade theory,however,analyze would be worse off than at the existing economic exchange in a political vacuum: equilibrium).In this equilibrium no one they focus exclusively on the real income contributes,no public good is produced, gains that accrue to a state that opens its and another-albeit unstable-Pareto- borders to trade.Yet national power is en- superior outcome exists(CC).To achieve gaged in free trade agreements because a stable free trade equilibrium,hegemonic such agreements produce security exter- stability theory asserts,a hegemon or nalities:the removal of trade barriers can dominant state must exist(Kindleberger affect not only the real income but also 1973,305).This is the equivalent of Man- the security of the states concerned.3 cur Olson's privileged group;that is,a The security externalities of trade arise group"such that each of its members,or from its inevitable jointness in produc- at least some one of them,has an incen- tion:the source of gains from trade is the tive to see that the collective good is pro- increased efficiency with which domestic vided,even if he [alone]has to bear the resources can be employed,and this in- full burden of providing it"(Olson 1971, crease in efficiency itself frees economic 50).While they accept the PD representa- resources for military uses (Root 1984). tion,critics assert that the logic of public Thus,trade increases the potential mili- good analysis itself indicts hegemonic tary power of any country that engages in theory:because small,or k,groups can it(Albert O.Hirschman,cited in Baldwin also provide public goods,either a hege- 1985,211).In doing so,it can disrupt the mon or a small group of states can stabil- preexisting balance of power among the ize a free trade system (Keohane 1984; contracting states (McKeown 1982,225).4 Snidal 1985;Yarbrough and Yarbrough Because it is locked into the insecurity 1987). that an anarchic international system The PD representation can be derived almost invariably produces,s a great as easily from standard international power is less likely to be concerned about trade theory (Conybeare 1984).The latter the absolute income than about the rela- points out that any state large enough to tive power effects of trade.The structure influence its terms of trade-the relative of international politics makes all states 1246
American Political Science Review Vol. 83 Table 1.The Prisoner's Dilemma Column Row Cooperate Defect Cooperate 2, 2 4, 1 Defect 1,4 3, 3 Note: Payoffs are ranked from 1(best) to 4 (worst); row's payoffs are listed first. matrix is illustrated in Table 1. Given these payoffs, the dominant strategy of each player is to defect, or refuse to contribute to, the supply of the public good. This leads to an equilibrium outcome of DD that is Pareto-inferior (i.e., another equilibrium exists in which at least one individual would be better off and no one would be worse off than at the existing equilibrium). In this equilibrium no one contributes, no public good is produced, and another-albeit unstable-Paretosuperior outcome exists (CC). To achieve a stable free trade equilibrium, hegemonic stability theory asserts, a hegemon or dominant state must exist (Kindleberger 1973,305). This is the equivalent of Mancur Olson's privileged group; that is, a group 'Such that each of its members, or at least some one of them, has an incentive to see that the collective good is provided, even if he [alone] has to bear the full burden of providing it" (Olson 1971, 50). While they accept the PD representation, critics assert that the logic of public good analysis itself indicts hegemonic theory: because small, or k, groups can also provide public goods, either a hegemon or a small group of states can stabilize a free trade system (Keohane 1984; Snidal 1985; Yarbrough and Yarbrough 1987). The PD representation can be derived as easily from standard international trade theory (Conybeare 1984). The latter points out that any state large enough to influence its terms of trade-the relative price of its exports-maximizes its real income by imposing an "optimum" tariff, that is, a tariff set at a level that maximizes the net gain that accrues from the improved terms and reduced volume of trade.1 If optimum tariffs are used by all states, however, an individually and collectively suboptimal outcome results: the volume of trade is reduced, but the terms of trade do not change.2 The mutually preferred outcome of free trade is difficult to achieve because it is not a stable or Nash equilibrium of the one-shot game: each state is better off defecting to an optimum tariff if others do not. Thus, standard trade theory also characterizes trade among large states as a PD game. Both the public good variant of hegemonic stability theory and standard international trade theory, however, analyze economic exchange in a political vacuum: they focus exclusively on the real income gains that accrue to a state that opens its borders to trade. Yet national power is engaged in free trade agreements because such agreements produce security externalities: the removal of trade barriers can affect not only the real income but also the security of the states concerned.3 The security externalities of trade arise from its inevitable jointness in production: the source of gains from trade is the increased efficiency with which domestic resources can be employed, and this increase in efficiency itself frees economic resources for military uses (Root 1984). Thus, trade increases the potential military power of any country that engages in it (Albert 0.Hirschman, cited in Baldwin 1985, 211). In doing so, it can disrupt the preexisting balance of power among the contracting states (McKeown 1982, 225).* Because it is locked into the insecurity that an anarchic international system almost invariably produces,5 a great power is less likely to be concerned about the absolute income than about the relative power effects of trade. The structure of international politics makes all states
Polarity and Free Trade aware that each seeks to exploit the persuade either Britain or the United wealth of others to enhance its own States to guarantee its security,France power.That trade is a means to this end is regarded the retention of the superior also common knowledge:as David Bald- position accorded to it in the treaty as its win observes,private international trade only alternative.Thus,"the sanctity of "is by far the most [cost-Jeffective .. treaties and the strict enforcement of the way for one country to acquire the goods status quo"became the first principles of or services of another"(Baldwin 1985, French foreign policy (Wolfers 1940,19). 116).As a result,states do not calculate Because it viewed any treaty revision as their payoffs from trade only in real in- setting a dangerous precedent,France en- come terms:relative power effects are gaged in a determined effort to compel likely to affect their calculations strongly. Germany to comply with its reparations The interwar period provides a com- obligations. pelling example of the power of the secur- Repeated negotiations on German pay- ity dilemma to contribute to a free trade ments did little to reconcile the underlying deadlock.The acrimony of the interna- conflicts of interests among the great tional economic diplomacy that preceded powers.Neither Britain nor the United the 1933 World Economic Conference States came to appreciate the French sense suggested that the conference would not of acute vulnerability;France never ac- secure a free trade truce.In the early inter- cepted the Anglo-American vision of an war years,the payment of German repar- economically prosperous and politically ations was the subject of repeated negotia- satiated Germany;and Germany never tions.Ostensibly a technical issue whose deviated from its strategy of destroying resolution depended upon expert testi- the Versailles settlement. mony regarding Germany's ability to pay, Thus,the economic diplomacy that the payment of reparations was in reality preceded the 1933 World Economic Con- a highly political issue:the integrity of the ference left a very unpromising legacy:a entire Versailles settlement was at stake pattern of intense conflict over fundamen- (Trachtenberg 1980,122). tal security issues among the great In negotiations that extended from the powers.It is no surprise that conflict Paris Peace Conference of 1919 to the rather than cooperation marked the 1933 Lausanne Conference of 1932,the issue of Conference as well,although factors reparations exposed the political roots of other than historical precedent contrib- international economic diplomacy.Deter- uted to its conspicuous lack of success mined to minimize its involvement in con- (Eichengreen 1988;Oye 1985). tinental politics,Britain insisted that the The interwar example obviously does stabilization of Europe depended on the not imply that political conflicts neces- restoration of financial stability and eco- sarily obstruct the realization of gains nomic prosperity to Germany.It opposed from trade.In theory,these conflicts need the provisions of the Versailles settlement not paralyze states.They can instead be that it believed either inhibited the resolved through the use of a two-step economic recovery of,or contributed to process in which states initially dismantle financial instability in,Germany (Schuker trade barriers between them;subsequent- 1976,384).As a result,Britain was sym- ly,each adjusts its defense strategy to ac- pathetic to German demands for a reduc- commodate any changes in the balance of tion in reparations. power that occur as trade barriers fall France,however,was reluctant to en- The danger that a window of vulnerabil- dorse any revision of the Versailles settle- ity may open between stages,however,is ment favorable to Germany.Unable to a powerful deterrent to this approach:the 1247
Polarity and Free Trade aware that each seeks to exploit the wealth of others to enhance its own power. That trade is a means to this end is also common knowledge: as David Baldwin observes, private international trade "is by far the most [cost-]effective . . . way for one country to acquire the goods or services of another" (Baldwin 1985, 116). As a result, states do not calculate their payoffs from trade only in real income terms: relative power effects are likely to affect their calculations strongly. The interwar period provides a compelling example of the power of the security dilemma to contribute to a free trade deadlock. The acrimony of the international economic diplomacy that preceded the 1933 World Economic Conference suggested that the conference would not secure a free trade truce. In the early interwar years, the payment of German reparations was the subject of repeated negotiations. Ostensibly a technical issue whose resolution depended upon expert testimony regarding Germany's ability to pay, the payment of reparations was in reality a highly political issue: the integrity of the entire Versailles settlement was at stake (Trachtenberg 1980, 122). In negotiations that extended from the Paris Peace Conference of 1919 to the Lausanne Conference of 1932, the issue of reparations exposed the political roots of international economic diplomacy. Determined to minimize its involvement in cantinental politics, Britain insisted that the stabilization of Europe depended on the restoration of financial stability and economic prosperity to Germany. It opposed the provisions of the Versailles settlement that it believed either inhibited the economic recovery of, or contributed to financial instability in, Germany (Schuker 1976, 384). As a result, Britain was syrnpathetic to German demands for a reduction in reparations. France, however, was reluctant to endorse any revision of the Versailles settlement favorable to Germany. Unable to persuade either Britain or the United States to guarantee its security, France regarded the retention of the superior position accorded to it in the treaty as its only alternative. Thus, "the sanctity of treaties and the strict enforcement of the status quo" became the first principles of French foreign policy (Wolfers 1940, 19). Because it viewed any treaty revision as setting a dangerous precedent, France engaged in a determined effort to compel Germany to comply with its reparations obligations. Repeated negotiations on German payments did little to reconcile the underlying conflicts of interests among the great powers. Neither Britain nor the United States came to appreciate the French sense of acute vulnerability; France never accepted the Anglo-American vision of an economically prosperous and politically satiated Germany; and Germany never deviated from its strategy of destroying the Versailles settlement. Thus, the economic diplomacy that preceded the 1933 World Economic Conference left a very unpromising legacy: a pattern of intense conflict over fundamental security issues among the great powers. It is no surprise that conflict rather than cooperation marked the 1933 Conference as well, although factors other than historical precedent contributed to its conspicuous lack of success (Eichengreen 1988; Oye 1985). The interwar example obviously does not imply that political conflicts necessarily obstruct the realization of gains from trade. In theory, these conflicts need not paralyze states. They can instead be resolved through the use of a two-step process in which states initially dismantle trade barriers between them; subsequently, each adjusts its defense strategy to accommodate any changes in the balance of power that occur as trade barriers fall. The danger that a window of vulnerability may open between stages, however, is a powerful deterrent to this approach: the
American Political Science Review Vol.83 historical record suggests that such win- eth centuries (Downs,Rocke,and Siver- dows can open surprisingly quickly son1985,119-20). (Trachtenberg 1988). Thus,although states can in theory suc- An obvious alternative is to negotiate cessfully confront the problems inherent trade and security agreements simultan- in the security externalities of free trade eously.Suppose,for example,that the agreements,analysis and evidence suggest Soviet Union and the United States that such successes will be rare events in wanted to trade freely with each other but world politics.It is,as a result,not sur- were concerned that the balance of power prising that students of trade regimes between them might shift as a result.In either explicitly or implicitly link their theory,the two countries could resolve analyses to the postwar Western alliance their fears by simultaneously negotiating (cf.Haggard and Simmons 1987,134; an arms control accord.In effect,this Keohane 1984;Yarbrough and Yarbrough solution compresses the sequential proc- 1986).Nor is it surprising that some ob- ess just outlined into a single stage. servers argue that tariff cuts are more like- The costs of implementing this solution ly between allies than between states be- may be prohibitive,however.As the longing to different military coalitions opening shots in the Uruguay Round (cKeown1982,225). make clear,the negotiation of a trade Not all military alliances are equally agreement alone,even among allies,is likely to evolve into free trade coalitions, very complex;its success is uncertain at however.I shall argue that alliances pro- best.If the merger of negotiations itself duced by bipolar systems are more likely, does not affect the incentives to conclude and ones formed within multipolar sys- either accord,an explicit linkage of trade tems are less likely,to so evolve. and security issues between potential or actual adversary states raises the costs and lowers the probability of success by Great Powers,Alliances, several orders of magnitude.Thus, and Free Trade assuming that gains from trade do not International systems are distinguished vary widely across potential negotiating here in terms of individual states rather partners,it is cheaper for states to negoti- than in terms of alliances (Rapkin 1988). ate with their allies on trade alone than to Thus,the definition of multipolar and bi- link trade and security issues in a compre- hensive negotiation involving possible or polar systems used here follows that of Synder and Diesing:the structure of an actual adversaries. The historical record demonstrates that international system more powerful incentives than the gains is defined by the number of major actors in the from trade have been necessary to control system and the distribution of military power arms races.Analyses of the nineteenth and potential among them.In a multipolar sys- and twentieth centuries conclude that the tem there are several (more than two)'Great Powers'whose military power is roughly equal, majority of arms races that have ended and whose rivalry and cooperation dominate peacefully have done so because of politics in the system.,··A bipolar system is changes in the macropolitical order- one with only two Great Powers and a number specifically,the emergence of a threat by of smaller states.(Snyder and Diesing 1977, 419-20) a third state to both participants in the race (Downs,Rocke,and Siverson 1985). If the security externalities of any free The rise of German power,for example, trade accord render military alliances the ultimately ended the British-French naval natural basis of such agreements,the PD race of the midnineteenth-to-early-twenti- incentive structure confronting states that 1248
American Political Science Review Vol .83 historical record suggests that such windows can open surprisingly quickly (Trachtenberg 1988). An obvious alternative is to negotiate trade and security agreements simultaneously. Suppose, for exdmple, that the Soviet Union and the United States wanted to trade freely with each other but were concerned that the balance of power between them might shift as a result. In theory, the two countries could resolve their fears by simultaneously negotiating an arms control accord. In effect, this solution compresses the sequential process just outlined into a single stage. The costs of implementing this solution may be prohibitive, however. As the opening shots in the Uruguay Round make clear, the negotiation of a trade agreement alone, even among allies, is very complex; its success is uncertain at best. If the merger of negotiations itself does not affect the incentives to conclude either accord, an explicit linkage of trade and security issues between potential or actual adversary states raises the costs and lowers the probability of success by several orders of magnitude. Thus, assuming that gains from trade do not vary widely across potential negotiating partners, it is cheaper for states to negotiate with their allies on trade alone than to link trade and security issues in a comprehensive negotiation involving possible or actual adversaries. The historical record demonstrates that more powerful incentives than the gains from trade have been necessary to control arms races. Analyses of the nineteenth and twentieth centuries conclude that the majority of arms races that have ended peacefully have done so because of changes in the macropolitical orderspecifically, the emergence of a threat by a third state to both participants in the race (Downs, Rocke, and Siverson 1985). The rise of German power, for example, ultimately ended the British-French naval race of the midnineteenth-to-early-twentieth centuries (Downs, Rocke, and Siverson 1985, 119-20). Thus, although states can in theory successfully confront the problems inherent in the security externalities of free trade agreements, analysis and evidence suggest that such successes will be rare events in world politics. It is, as a result, not surprising that students of trade regimes either explicitly or implicitly link their analyses to the postwar Western alliance (cf. Haggard and Simmons 1987, 134; Keohane 1984; Yarbrough and Yarbrough 1986). Nor is it surprising that some observers argue that tariff cuts are more likely between allies than between states belonging to different military coalitions (McKeown 1982,225). Not all military alliances are equally likely to evolve into free trade coalitions, however. I shall argue that alliances produced by bipolar systems are more likely, and ones formed within multipolar systems are less likely, to so evolve. Great Powers, Alliances, and Free Trade International systems are distinguished here in terms of individual states rather than in terms of alliances (Rapkin 1988). Thus, the definition of multipolar and bipolar systems used here follows that of Synder and Diesing: the structure of an international system is defined by the number of major actors in the system and the distribution of military power and potential among them. In a multipolar system there are several (more than two) 'Great Powers' whose military power is roughly equal, and whose rivalry and cooperation dominate politics in the system. . . . A bipolar system is one with only two Great Powers and a number of smaller states. (Snyder and Diesing 1977, 419-20) If the security externalities of any free trade accord render military alliances the natural basis of such agreements, the PD incentive structure confronting states that
Polarity and Free Trade seek security in a multipolar system is indeed more likely to occur in n-power makes alliance formation likely:the frag- than in two-power systems(Duncan and mentation of the system into rival alli- Siverson 1982). ances is much more likely than a tacit or The number of great powers is obvious- explicit general assignment to abstain ly not the only source of variations in alli- from such alliances (Snyder 1984,462). ance durability.In the postwar period,for That a similar dynamic has occurred in example,the stability of the Western alli- the postwar bipolar system is clear. ance is the product not only of shared In principle,neither the alliances of a strategic interests but also of the demo- multipolar,nor those of a bipolar,system cratic polities and mixed economies com- should enjoy an advantage with respect to mon to its members;analogously,the the evolution of a corresponding free Soviet Union's determination to maintain trade coalition:alliances in both systems ideologically compatible states along its render the security externalities that ac- western frontier tightens bonds among crue to a state's trading partners positive members of the Warsaw Pact.But idio- rather than negative.Yet a bipolar system syncratic factors alone do not explain the is advantaged relative to its multipolar postwar alliance configuration:analytic counterpart on two dimensions relevant arguments also predict that bipolar sys- to the conclusion of an agreement to open tems generally will produce more stable intraalliance markets:(1)exit and(2)in- coalitions than will their multipolar centives of the great power members to counterparts. forgo the use of their market power to ex- First,as Snyder argues,bipolar coali- ploit the smaller members of the alliance. tions are the product largely of systemic structure.Alliances in a multipolar sys- tem,however,are not structurally deter- mined but are the result instead of "choice The Costs of Exit among several options"(Snyder 1984, 415).Typically,serious conflicts of inter- The threat that any member can exit or est among the great powers of any given abandon an existing alliance to join an system result from the anarchic character alternative one reduces the likelihood that of international politics.As a conse- allies will open their markets to each quence,the substitutability of great other:exit transforms the external secur- power allies is likely to decline with their ity economies that would otherwise facili- number:the probability of finding tate the conclusion of an accord into another large power as compatible as the diseconomies.As exit opportunities re- existing ally varies directly with the num- create balance-of-power fears and also ber of great powers that exist.Thus,the shorten the "shadow of the future,"pros- great powers of a two-power system are pects for free trade even within interna- less likely than are those of an n-power tional alliances seem dim. world to be close substitutes for each As Snyder observes in his discus- other. sion of the alliance security dilemma, This can be represented spatially, however,the risk of exit varies widely where the distance between any two states across international systems:the risk is is a measure of the conflict of interest be- higher in multipolar than in bipolar inter- tween them.A bipolar system embedded national political systems(Snyder 1984). in an anarchic world is likely to distribute Snyder's hypothesis has been confirmed its constituent great powers 180 degrees empirically:studies of the nineteenth and from each other.Thus,a very sharp dis- twentieth centuries demonstrate that exit tinction is likely to exist between the two 1249
Polarity and Free Trade seek security in a multipolar system makes alliance formation likely: the fragmentation of the system into rival alliances is much more likely than a tacit or explicit general assignment to abstain from such alliances (Snyder 1984, 462). That a similar dynamic has occurred in the postwar bipolar system is clear. In principle, neither the alliances of a multipolar, nor those of a bipolar, system should enjoy an advantage with respect to the evolution of a corresponding free trade coalition: alliances in both systems render the security externalities that accrue to a state's trading partners positive rather than negative. Yet a bipolar system is advantaged relative to its multipolar counterpart on two dimensions relevant to the conclusion of an agreement to open intradiance markets: (1)exit and (2) incentives of the great power members to forgo the use of their market power to exploit the smaller members of the alliance. The Costs of Exit The threat that any member can exit or abandon an existing alliance to join an alternative one reduces the likelihood that allies will open their markets to each other: exit transforms the external security economies that would otherwise facilitate the conclusion of an accord into diseconomies. As exit opportunities recreate balance-of-power fears and also shorten the "shadow of the future," prospects for free trade even within international alliances seem dim. As Snyder observes in his discussion of the alliance security dilemma, however, the risk of exit varies widely across international systems: the risk is higher in multipolar than in bipolar international political systems (Snyder 1984). Snyder's hypothesis has been confirmed empirically: studies of the nineteenth and twentieth centuries demonstrate that exit is indeed more likely to occur in n-power than in two-power systems (Duncan and Siverson 1982). The number of great powers is obviously not the only source of variations in alliance durability. In the postwar period, for example, the stability of the Western alliance is the product not only of shared strategic interests but also of the democratic polities and mixed economies common to its members; analogously, the Soviet Union's determination to maintain ideologically compatible states along its western frontier tightens bonds among members of the Warsaw Pact. But idiosyncratic factors alone do not explain the postwar alliance configuration: analytic arguments also predict that bipolar systems generally will produce more stable coalitions than will their multipolar counterparts. First, as Snyder argues, bipolar coalitions are the product largely of systemic structure. Alliances in a multipolar system, however, are not structurally determined but are the result instead of "choice among several options" (Snyder 1984, 415). Typically, serious conflicts of interest among the great powers of any given system result from the anarchic character of international politics. As a consequence, the substitutability of great power allies is likely to decline with their number: the probability of finding another large power as compatible as the existing ally varies directly with the number of great powers that exist. Thus, the great powers of a two-power system are less likely than are those of an n-power world to be close substitutes for each other. This can be represented spatially, where the distance between any two states is a measure of the conflict of interest be tween them. A bipolar system embedded in an anarchic world is likely to distribute its constituent great powers 180 degrees from each other. Thus, a very sharp distinction is likely to exist between the two
American Political Science Review Vol.83 great powers of any bipolar system.As a uncertainty over time,they are more like- consequence,each is likely to appeal to a ly to occur in an n-power world than in a very different set of potential allies,and two-power world. the allies themselves will be highly con- Finally,exit risks are likely to be lower strained both with respect to their initial in a two-power system because realign- choice of an alliance partner and with ment is impossible for either great power. respect to their ability to shift alliances By default,alliance stability is also the ex- thereafter. clusive responsibility of each:neither of The addition of one or more states to the two great powers in such a system can the system automatically increases the expect any other state to prevent the range of choice available to allies.Because defection of an ally from within its bloc this change necessarily reduces the dis- (Snyder 1984).In a multipolar system,the tance between states relative to a bipolar interest in preserving alliance stability and system,it also increases the range of alli- the incentive to do so can be distributed ance choices and the opportunities for across more than one great power.As a alliance shifts relative to a two-power consequence,each may seek to transfer world.As a result,coalitions in an the burden of maintaining the alliance to n-power system,unlike alliances in a bi- the other. polar world,tend to be"unstable and vul- Thus,a strong analytic argument,as nerable to policy disagreement"(Snyder well as empirical data,supports the hy- 1984,415). pothesis that the risk of exit varies across A second reason that different exit risks international systems.This variation,in exist is that the distribution of informa- turn,induces variation in the discount tion about potential allies is likely to vary rates of alliance members.Allies in a across systems.The industrial organiza- multipolar system will tend to discount tion literature distinguishes between the future benefits accruing from open search goods and experience goods.Ap- markets among them more heavily than plied to international alliances,this dis- will their bipolar counterparts.The rela- tinction illustrates the impact of varia- tively lower value they place on the future tions in information on coalitional stabil- relative to the present reflects their recog- ity.In economics,consumers have com- nition of the "likelihood that the future plete information about the characterist- will not come"(Levi 1988,13).The dis- ics of search goods before purchase (a count factors of allies in a bipolar system, dress,for example);experience goods are in contrast,are not subject to the same products whose characteristics become downward bias:the greater stability of bi- fully known to consumers only after pur- polar coalitions allows the value of future chase(a restaurant's quality,for example) to approximate present benefits more (Tirole1988,106). closely. Because the amount of reliable informa- An analysis of relative exit risks sug- tion about potential great power allies is gests that the security externalities of any likely to be inversely related to their num- free trade agreement are more likely to re- ber,alliances are more likely in a bipolar main internalized within the alliances of system to resemble search goods and in a bipolar systems than they are within alli- multipolar system to resemble experience ances of multipolar ones.As a result,both goods.Thus,the passage of time leads to the economic and political benefits of in- greater learning about alliance partners in traalliance free trade are likely to be dis- a multipolar world than it does in a bi- counted less heavily in a two-power than polar world.To the extent that alliance in an n-power world.Thus,the dimension shifts are a function of the reduction of of exit advantages a bipolar system with 1250
American Political Science Review Vol. 83 great powers of any bipolar system. As a consequence, each is likely to appeal to a very different set of potential allies, and the allies themselves will be highly constrained both with respect to their initial choice of an alliance partner and with respect to their ability to shift alliances thereafter. The addition of one or more states to the system automatically increases the range of choice available to allies. Because this change necessarily reduces the distance between states relative to a bipolar system, it also increases the range of alliance choices and the opportunities for alliance shifts relative to a two-power world. As a result, coalitions in an n-power system, unlike alliances in a bipolar world, tend to be "unstable and vulnerable to policy disagreement" (Snyder 1984, 415). A second reason that different exit risks exist is that the distribution of information about potential allies is likely to vary across systems. The industrial organization literature distinguishes between search goods and experience goods. Applied to international alliances, this distinction illustrates the impact of variations in information on coalitional stability. In economics, consumers have complete information about the characteristics of search goods before purchase (a dress, for example); experience goods are products whose characteristics become fully known to consumers only after purchase (a restaurant's quality, for example) (Tirole 1988, 106). Because the amount of reliable information about potential great power allies is likely to be inversely related to their number, alliances are more likely in a bipolar system to resemble search goods and in a multipolar system to resemble experience goods. Thus, the passage of time leads to greater learning about alliance partners in a multipolar world than it does in a bipolar world. To the extent that alliance shifts are a function of the reduction of uncertainty over time, they are more likely to occur in an n-power world than in a two-power world. Finally, exit risks are likely to be lower in a two-power system because realignment is impossible for either great power. By default, alliance stability is also the exclusive responsibility of each: neither of the two great powers in such a system can expect any other state to prevent the defection of an ally from within its bloc (Snyder 1984). In a multipolar system, the interest in preserving alliance stability and the incentive to do so can be distributed across more than one great power. As a consequence, each may seek to transfer the burden of maintaining the alliance to the other. Thus, a strong analytic argument, as well as empirical data, supports the hypothesis that the risk of exit varies across international systems. This variation, in turn, induces variation in the discount rates of alliance members. Allies in a multipolar system will tend to discount the future benefits accruing from open markets among them more heavily than will their bipolar counterparts. The relatively lower value they place on the future relative to the present reflects their recognition of the "likelihood that the future will not come" (Levi 1988, 13). The discount factors of allies in a bipolar system, in contrast, are not subject to the same downward bias: the greater stability of bipolar coalitions allows the value of future to approximate present benefits more closely. An analysis of relative exit risks suggests that the security externalities of any free trade agreement are more likely to remain internalized within the alliances of bipolar systems than they are within alliances of multipolar ones. As a result, both the economic and political benefits of intraalliance free trade are likely to be discounted less heavily in a two-power than in an n-power world. Thus, the dimension of exit advantages a bipolar system with
Polarity and Free Trade respect to the opening of markets between Table 2.The Tariff Game between Allies or among states. Column Intraalliance Exploitation:Incentives and Constraints Row Cooperate Defect Cooperate 1,3 3,1 The presence of both great and small Defect 2,4 4,2 powers within an alliance raises the issue of exploitation in sharp relief.Assuming Note:Payoffs are ranked from 1(best)to 4(worst); that "great"and "small"are good proxies row's payoffs are listed first. for market power,6 the tariff game be- tween allies is an asymmetric one:a large state can,and a small state cannot,use tariffs to improve its terms of trade.In for example,it has some private informa- this game,the dominant strategy of the tion about the elasticity of global large state is to defect to an optimum demand-and-supply curves and if small tariff;the dominant strategy of the small countries organizing to exert countervail- state is to cooperate or adhere to free ing power in world markets incur some trade (Conybeare 1987,35).Table 2 dis- costs in doing so.That a hegemon might plays the payoffs to the small (row)and to indeed have private information about the large(column)power.The logical out- global markets follows logically from its come of the game is CD:the small state incentives to become informed about abjures and the large state erects tariff them;a small country,in contrast,has lit- barriers.Under what conditions,then, tle incentive to acquire such information, will free trade occur within an alliance? because it assumes that it cannot affect its What will persuade the intraalliance hege- terms of trade.That significant transac- mon to forgo an optimum tariff? tion costs are incurred in the process of forming customs unions follows from the Incentives to exploit.Critics of hegemonic distributional effects (both within and stability theory argue that there are strong across the custom union's potential mem- incentives for any hegemon to use an opti- bers)evoked by the setting of uniform ex- mum tariff (Conybeare 1984,1987).On ternal trade barriers (McMillan 1986,67). economic grounds alone,however,a non- The trading practices of both Britain myopic,rational hegemon may reject and the United States suggest that the such a tariff for the same reason that a analogy to limit pricing is of more than domestic monopolist sets prices below just analytic interest.Midnineteenth- their short-run maximizing levels:to deter century Britain,according to one observ- competition.?By "limit"pricing,the er,maintained its tariffs at less than opti- monopolist seeks to convince potential mum levels in order to fix its "monopoly entrants that its costs of production are of manufactures on the rest of the world lower than they are in reality (Milgrom for a few more decades than its natural and Roberts 1982).The incumbent firm's term"(William Cunningham,cited in Mc- ability to sacrifice short-run gains in order Closkey 1980,304).The logic of limit to earn higher,long-run returns depends pricing apparently became clear to the on the existence of costs to entry as well as United States when it attempted,in the on asymmetric information about its costs 1930 Smoot-Hawley tariff,to turn the of production.8 terms of trade in its favor.This effort, A rational,nonmyopic hegemon may among other factors,provoked the con- set its tariff at less than the short-run opti- struction of trading blocs abroad and ap- mum level under analogous conditions:if, parently induced the United States to try 1251
Polarity and Free Trade respect to the opening of markets between or among states. Intraalliance Exploitation: Incentives and Constraints The presence of both great and small powers within an alliance raises the issue of exploitation in sharp relief. Assuming that "great" and "small" are good proxies for market power,6 the tariff game between allies is an asymmetric one: a large state can, and a small state cannot, use tariffs to improve its terms of trade. In this game, the dominant strategy of the large state is to defect to an optimum tariff; the dominant strategy of the small state is to cooperate or adhere to free trade (Conybeare 1987, 35). Table 2 displays the payoffs to the small (row) and to the large (column) power. The logical outcome of the game is CD: the small state abjures and the large state erects tariff barriers. Under what conditions, then, will free trade occur within an alliance? What will persuade the intraalliance hegemon to forgo an optimum tariff? Incentives to exploit. Gitics of hegemonic stability theory argue that there are strong incentives for any hegemon to use an optimum tariff (Conybeare 1984, 1987). On economic grounds alone, however, a nonmyopic, rational hegemon may reject such a tariff for the same reason that a domestic monopolist sets prices below their short-run maximizing levels: to deter competition.' By "limit" pricing, the monopolist seeks to convince potential entrants that its costs of production are lower than they are in reality (Milgrom and Roberts 1982). The incumbent firm's ability to sacrifice short-run gains in order to earn higher, long-run returns depends on the existence of costs to entry as well as on asymmetric information about its costs of production.8 A rational, nonmyopic hegemon may set its tariff at less than the short-run optimum level under analogous conditions: if, Table 2. The Tariff Game between Allies Column Row Cooperate Defect Cooperate 1, 3 3, 1 Defect 2, 4 4, 2 Note: Payoffs are ranked from 1 (best) to 4 (worst); row's payoffs are listed first. for example, it has some private information about the elasticity of global demand-and-supply curves and if small countries organizing to exert countervailing power in world markets incur some costs in doing so.9 That a hegemon might indeed have private information about global markets follows logically from its incentives to become informed about them; a small country, in contrast, has little incentive to acquire such information, because it assumes that it cannot affect its terms of trade. That significant transaction costs are incurred in the process of forming customs unions follows from the distributional effects (both within and across the custom union's potential members) evoked by the setting of uniform external trade barriers (McMillan 1986, 67). The trading practices of both Britain and the United States suggest that the analogy to limit pricing is of more than just analytic interest. Midnineteenthcentury Britain, according to one observer, maintained its tariffs at less than optimum levels in order to fix its "monopoly of manufactures on the rest of the world for a few more decades than its natural term" (William Cunningham, cited in McCloskey 1980, 304). The logic of limit pricing apparently became clear to the United States when it attempted, in the 1930 Smoot-Hawley tariff, to turn the terms of trade in its favor. This effort, among other factors, provoked the construction of tra- blocs abroad and apparently induced the United States to try
American Political Science Review Vol.83 to lower global barriers to trade after the ply that its"utility function depends posi- war. tively on the well-being"of its allies In short,because an attempt to exploit (Becker 1981,173).Thus,the great power its power in the short run may undermine derives less utility from intraalliance in- that power over time,a nonmyopic,ra- come transfers than from other interna- tional hegemon may reject an optimum tional income transfers (see Conybeare tariff.Although the limit pricing argu- 1987,88). ment does not support an inference that Indeed,each great power in an alliance free trade-the international analogue of may actually be better off if it renounces competitive prices at the domestic level- the use of trade barriers:the marginal util- will prevail,it does suggest that unilateral ity to it of an increase in the income of an restrictions on the use of an optimum ally may be greater than the marginal tariff can be in the strictly economic self- utility to it of a smaller increase in its own interest of a far-sighted,clear-thinking income.Thus,all members of an alliance hegemon-whether within or outside an may be better off if the great power or alliance. powers pursue free trade,just as the utili- Because the limit pricing analogue sug- ty of two individuals may be enhanced by gests that it may be cheaper to forgo an a transfer of income from one to the other optimum tariff than standard trade theory (Boadway and Wildasin 1984,116).That implies,it also suggests that the incidence this is plausible in the context of intra- of decisions to do so for political reasons alliance trade is suggested by the efficien- and the incidence of intraalliance altruism cy losses associated with the use of tariffs may be higher than would otherwise be (Caves and Jones 1973,244)and by the expected.Experimental results indicate, large welfare improvements that typically for example,that the frequency of altruis- accrue to small states as a consequence of tic behavior is inversely related to its cost trade. (Frohlich et al.1984,23).Thus,in its own Intraalliance altruism is more likely to self-interest,a great power may choose to be supplied within the coalitions of bi- forgo the use of an optimum tariff against polar systems than within the coalitions its smaller allies. of multipolar ones.Both the threat of exit and the hope that another great power Constraints on exploitation.A great member of the alliance will act altruisti- power's ability to exercise its monopoly cally make it improbable that interdepen- power depends not only on its economic dent utility functions will motivate "effec- incentives to do so but also on the con- tive"altruism (i.e.,an actual change in straints others can impose on it.In a behavior [Becker 1981,173])in a multi- variety of contexts (Levi 1983,1988; polar world.Exit creates the risk that in- Popkin 1986),constraints on the ability of come forgone will redound to the advan- the more-powerful to exploit the less- tage of another alliance.Vulnerability to powerful are attributed to the dependence free riding threatens the expression of of the"rulers"on the welfare of those they altruism,because any great power is bet- rule and to the existence of competition ter off if another acts to advance the col- or of "rivals to rule"(North 1981). lective welfare of the alliance than if it Analogous constraints limit the exploi- does so itself;thus,as is true of coalition tation of the small by the large within alli- maintenance,each state may pursue its ances.The dependence of each great national rather than alliance interests power on the welfare of its allies gives (Collard1978,13). each an incentive to define its self-interest The competitive constraint on exploita- altruistically,where altruism means sim- tion,however,might appear to be strong- 1252
American Political Science Review Vol. 83 to lower global barriers to trade after the war. In short, because an attempt to exploit its power in the short run may undermine that power over time, a nonmyopic, rational hegemon may reject an optimum tariff. Although the limit pricing argument does not support an inference that free trade-the international analogue of competitive prices at the domestic levelwill prevail, it does suggest that unilateral restrictions on the use of an optimum tariff can be in the strictly economic selfinterest of a far-sighted, clear-thinking hegemon-whether within or outside an alliance. Because the limit pricing analogue suggests that it may be cheaper to forgo an optimum tariff than standard trade theory implies, it also suggests that the incidence of decisions to do so for political reasons and the incidence of intraalliance altruism may be higher than would otherwise be expected. Experimental results indicate, for example, that the frequency of altruistic behavior is inversely related to its cost (Frohlich et al. 1984,23). Thus, in its own self-interest, a great power may choose to forgo the use of an optimum tariff against its smaller allies. Constraints on exploitation. A great power's ability to exercise its monopoly power depends not only on its economic incentives to do so but also on the constraints others can impose on it. In a variety of contexts (Levi 1983, 1988; Popkin 1986), constraints on the ability of the more-powerful to exploit the lesspowerful are attributed to the dependence of the "rulers" on the welfare of those they rule and to the existence of competition or of "rivals to rule" (North 1981). Analogous constraints limit the exploitation of the small by the large within alliances. The dependence of each great power on the welfare of its allies gives each an incentive to define its self-interest altruistically, where altruism means simply that its "utility function depends positively on the well-being" of its allies (Becker 1981,173). Thus, the great power derives less utility from intraalliance income transfers than from other international income transfers (see Conybeare 1987, 88). Indeed, each great power in an alliance may actually be better off if it renounces the use of trade barriers: the marginal utility to it of an increase in the income of an ally may be greater than the marginal utility to it of a smaller increase in its own income. Thus, all members of an alliance may be better off if the great power or powers pursue free trade, just as the utility of two individuals may be enhanced by a transfer of income from one to the other (Boadway and Wildasin 1984, 116). That this is plausible in the context of intraalliance trade is suggested by the efficiency losses associated with the use of tariffs (Caves and Jones 1973, 244) and by the large welfare improvements that typically accrue to small states as a consequence of trade. Intraalliance altruism is more likely to be supplied within the coalitions of bipolar systems than within the coalitions of multipolar ones. Both the threat of exit and the hope that another great power member of the alliance will act altruistically make it improbable that interdependent utility functions will motivate "effective" altruism (i.e., an actual change in behavior [Becker 1981, 1731) in a multipolar world. Exit creates the risk that income forgone will redound to the advantage of another alliance. Vulnerability to free riding threatens the expression of altruism, because any great power is better off if another acts to advance the collective welfare of the alliance than if it does so itself; thus, as is true of coalition maintenance, each state may pursue its national rather than alliance interests (Collard 1978, 13). The competitive constraint on exploitation, however, might appear to be strong-
Polarity and Free Trade er in a multipolar system than in a bipolar that these agreements are more likely to one:the relative scarcity of exit options in occur within than between military alli- the latter would seem to create ample op- ances.More importantly,the evolution of portunities for exploitation.As McKeown alliances into free trade coalitions is more points out in a more general context,for probable in a bipolar than in a multipolar example,Britain could impose "highly system.Crucial to the advantage of a favorable commercial treaties with [sic] two-power system are the lower threat of the South American states";it was less exit and the stronger incentives for intra- successful with Spain and Portugal,who alliance altruism that it confronts. could seek French support if British de- This analysis sheds some new light on mands became excessive(McKeown 1982, several debates about the causes of free 214).The rivalry-to-rule constraint, and controlled trade during the nineteenth though,does not arise exclusively from and twentieth centuries.It effectively allies'opportunity costs of exit.It inheres assigns a large role in the opening of post- as well in the competition between or war Western markets to the transition among alliances as a whole that an anar- from a multipolar to a bipolar interna- chic international structure typically pro- tional security system that occurred duces. simultaneously.It also implicitly attrib- Although it is theoretically possible for utes the breakdown of trade in the inter- the great powers of any system to collude war period partly to the existence of a in the exploitation of their allies,it is more multipolar security dilemma.It provides a likely that the noncollusive outcome will good fit to arguments that Britain was emerge(Snyder 1984,462).In its attempt neither a political hegemon nor a strong to balance the power of the opposing advocate of lowering trade barriers else- bloc,each great power is more likely to where during the nineteenth century pursue the individually rational but col- (McKeown 1983;Russett 1985). lectively suboptimal strategy of investing Of course,the argument can also be in- in the welfare of its allies.The pattern of dicted on several counts.Any attempt to investment is likely to vary across sys- test it empirically will confront many tems,however. problems familiar to students of interna- Any great power member of a coalition tional relations:for example,the small in a multipolar world has strong incen- number of international systems during tives to discriminate among its allies in the period of modern international trade terms of its investment in them,as its precludes statistical analysis,and it is dif- allies presumably confront divergent op- ficult to use comparative case studies portunity costs of exit.In contrast,the in- because of large variations in important centive to discriminate in a bipolar world variables between or among the cases.In is much weaker,as allies are much more addition,the problem of the single case- uniformly and securely locked into coali- that of bipolarity-arises.One way to ad- tions.Thus,in the trade arena,for exam- dress the latter problem might be to break ple,investments in allies in a multipolar apart multipolar systems,since these sys- system are likely to be expressed in the tems vary in terms of alliance flexibility: form of discriminatory trade preferences; ones that have experienced an"integrative in a bipolar system,free trade is the more spiral"should more closely resemble bi- likely outcome.10 polar systems than ones that have not. Problems also exist at the analytic level. Conclusion Vulnerable to challenge are my implicit or explicit assumptions that incentives to ex- The security externalities of agreements ploit,the utility of allies,and the impor- to open borders to trade,I argue,imply tance of security externalities can be held 1253
Polaritv and Free Trade er in a multipolar system than in a bipolar one: the relative scarcity of exit options in the latter would seem to create ample opportunities for exploitation. As McKeown points out in a more general context, for example, Britain could impose ''highly favorable commercial treaties with [sic] the South American states"; it was less successful with Spain and Portugal, who could seek French support if British demands became excessive (McKeown 1982, 214). The rivalry-to-rule constraint, though, does not arise exclusively from allies' opportunity costs of exit. It inheres as well in the competition between or among alliances as a whole that an anarchic international structure typically produces. Although it is theoretically possible for the great powers of any system to collude in the exploitation of their allies, it is more likely that the noncollusive outcome will emerge (Snyder 1984, 462). In its attempt to balance the power of the opposing bloc, each great power is more likely to pursue the individually rational but collectively suboptimal strategy of investing in the welfare of its allies. The pattern of investment is likely to vary across systems, however. Any great power member of a coalition in a multipolar world has strong incentives to discriminate among its allies in terms of its investment in them, as its allies presumably confront divergent opportunity costs of exit. In contrast, the incentive to discriminate in a bipolar world is much weaker, as allies are much more uniformly and securely locked into coalitions. Thus, in the trade arena, for example, investments in allies in a multipolar system are likely to be expressed in the form of discriminatory trade preferences; in a bipolar system, free trade is the more likely outcome.10 Conclusion The security externalities of agreements to open borders to trade, I argue, imply that these agreements are more likely to occur within than between military alliances. More importantly, the evolution of alliances into free trade coalitions is more probable in a bipolar than in a multipolar system. Crucial to the advantage of a two-power system are the lower threat of exit and the stronger incentives for intraalliance altruism that it confronts. This analysis sheds some new light on several debates about the causes of free and controlled trade during the nineteenth and twentieth centuries. It effectively assigns a large role in the opening of postwar Western markets to the transition from a multipolar to a bipolar international security system that occurred simultaneously. It also implicitly attributes the breakdown of trade in the interwar period partly to the existence of a multipolar security dilemma. It provides a good fit to arguments that Britain was neither a political hegemon nor a strong advocate of lowering trade barriers elsewhere during the nineteenth century (McKeown 1983; Russett 1985). Of course, the argument can also be indicted on several counts. Any attempt to test it empirically will confront many problems familiar to students of international relations: for example, the small number of international systems during the period of modern international trade precludes statistical analysis, and it is difficult to use compaiative case studies because of large variations in important variables between or among the cases. In addition, the problem of the single casethat of bipolarity-arises. One way to address the latter problem might be to break apart multipolar systems, since these systems vary in terms of alliance flexibility: ones that have experienced an "integrative spiral" should more closely resemble bipolar systems than ones that have not. Problems also exist at the analytic level. Vulnerable to challenge are my implicit or explicit assumptions that incentives to exploit, the utility of allies, and the importance of security externalities can be held
