Tuesday, October 26, 2010

Structure and Experimentation in the International System

. Tuesday, October 26, 2010

Jeffrey Frankel says that we can learn from policy experiments in smaller countries:

Two decades ago, many people thought that the lesson of the 1980’s was that Japan’s variant of capitalism was the best model, and that other countries around the world should and would follow it. The Japanese model quickly lost its luster in the 1990’s.

A decade ago, many thought that the lesson of the 1990’s was that the United States’ variant of capitalism was the best model, and that other countries should and would follow. The American model lost its attractiveness in the 2000’s.

So, where should countries look now, in 2010, for models of economic success to emulate?

Perhaps they should look to the periphery of the world economy. Many small countries there have experimented with policies and institutions that could usefully be adopted by others. ...

[A] country does not have to be large to serve as a model for others.

Small countries tend to be open to trade. Often, they are open to new ideas – and freer than large countries to experiment. The results of such experiments – even those that fail – include useful lessons for all of us.

Perhaps. But small countries have a big advantage when it comes to experimentation: they are small. If Estonia or Mauritius (two of his examples) try out some new policy, it doesn't affect the global economy at all. If the U.S. even considers trying to adjust the composition of the maturity of its debt (QE2), the global economy goes crazy. If the U.S. pursues typical monetary policy -- holding interest rates low to combat deflation by counteracting a dropping velocity of money -- other major countries freak out about "currency manipulation".

There are structural factors in international politics that give states advantages over others in some areas but not in others. The position of the U.S. as the leading state provides benefits for the U.S., but it also prevents the sort of policy experimentation that has worked so well for Chile. Or China, for that matter. And Chile and China would not be able to experiment if the stability of the system was not maintained by others.


Structure and Experimentation in the International System
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