THE STERLING AREA REVISITED: THE POLITICAL ECONOMY OF INTERNATIONAL ECONOMIC DISINTEGRATION

Lead Research Organisation: Queen's University of Belfast
Department Name: Sch of Hist, Anthrop, Philos & Politics

Abstract

The Brexit process and election of Donald Trump call forth pressing questions about the future global financial and trade relationships. What political and economic mechanisms support international economic orders, and the hollowing out of such orders? Who wins and who loses when international regimes breakdown?

Historical parallels are commonly drawn between the current popular backlash against globalisation and the international politics and economics of the 1930s. However, the disintegration of the Sterling Area after 1945, a long-forgotten historical remnant of British economic imperialism, may be more instructive as the world faces the prospect of American economic decline and a fraying EU economic regime.

The Sterling Area, a group of countries bound to Britain through the deep historical, political and economic ties, remained after WWII, "the largest multilateral trading system in the world" (Shannon 1949). But the system was slowly declining even then and definitively came apart in the 1970s. This study is the first to quantitatively survey the dissolution of the economic bloc as it played out in Britain and across member countries. This history can help us to recognize and better understand the dynamics of international economic disintegration and realignment.

In the early post-war period, Sterling Area participants vigorously debated their relative burdens as well as the benefits of ongoing membership (e.g. Conan 1952; Day 1954). But later observers focused on the system's effects on the British domestic economy and on the international monetary order at large (e.g. Cohen 1971, Schenk 2010). The mounting burdens on the bloc's individual participants that drove them to leave the system have been neglected. Moreover, there has never been a systematic study of how discriminatory international trade policies and economic patterns evolved in this transitional era. We need to understand how the choices of states affected international monetary and trading outcomes, if they are to help us navigate today's dynamics of dissolution and realignment.

And choices there were. While particulars differed, most countries enjoyed some autonomy in making trade and exchange-rate policies. Further, most industries could decide between adapting to the shifting global economic environment or else defending their Sterling Area markets. The key political and economic choices were structured through a loosely coupled set of specific interacting regimes, including the Sterling Area, US-dollar area, European Payments Union, a network of bilateral agreements, and multilateral arrangements under the General Agreement on Tariffs and Trade (GATT) and Bretton Woods institutions.

In this fragmented world economy that mirrors today's, countries evaluated trade-offs between the benefits of the Sterling Area discrimination and those of liberalisation, including closer economic ties with America and Europe. With new data and mixed method techniques, we can evaluate why states made the choices they did in this context and consider the implications for economic performance and outcomes.

The breakdown of the Sterling Area has been studied before (e.g. Schenk 1994; Strange 1971). But our re-evaluation takes seriously variables that have been ignored in the past, such as the international political and institutional factors that structured state behaviour, market performance within the system and connections with other parts of the world economy. We will also tackle a uniquely comprehensive range of influences, considering the impact of the system on member exit decisions, British trade performance, and the adaptive strategies pursued by policymakers.

More complete research is useful to those grappling with today's international realignments. By focusing on the right data, we hope to show that the post-WWII world economy can shed light on issues such as the decline of the US dollar, Brexit, and mounting protectionism in global trade.

Planned Impact

Academic impact: The study will follow a clear academic dissemination plan designed to reach an international interdisciplinary audience. The study will produce four research articles.

I: "The Political Economy of Economic Re-Alignment" International Organization
II: "Conflicted by Structure? Power and Policy in a Fragmented Global Economy" Review of International Political Economy
III: "Trade and Payments Policy and Correlates of Decline in Sterling Area Trade" The Journal of Economic History
IV: "The Disintegration of the Sterling Area Re-visited" American Political Science Review

At the end of the project, the PI and CI will prepare a book proposal to be completed after the funded period. We will also seek to publish the papers written for the Queen's methods workshop and the Howard Marks Chair lecture series and workshops as Special Issues and collected volumes.

Policy impact: Better understanding of the politics of economic disintegration is important to policymakers and business practitioners confronted with nationalist risks to regional economic orders deemed crucial by some to national prosperity and commercial success. A key ambition of the project is to provide solid evidence and analytical insights for the policymaking process. What are the best models for managing disintegrative pressures? What are the political and economic consequences of different responses? Policymakers and business leaders should think carefully about these questions, and this project will help them do so.

To this end, we have fostered links with the Institute for Government, Chatham House's International Economics Department, the Centre for European Policy Studies, Eurofi. We will also share findings with the Political Economy of Financial Markets and Global Economic Governance Programs in Oxford and the Lauder Institute and Perry World House Center at the University of Pennsylvania.

Public discourse and media: A variety of publishers may be interested in reviewing the outputs of the project or citing it for expert analysis. Serious engagement with the research can be expected from the Economist and Financial Times, in particular its Future of Britain Project. Given Brexit and popular backlash against NAFTA and other institutional foundations of liberal globalisation, the forces of economic disintegration are front and centre in current affairs. Our work can help publics grappling with difficult questions and competing claims about disintegration. The dominant narratives of industrialists, financiers, and politicians, on all sides of the argument, often appeal to history, in particular in the case of Brexit where advocates highlight potential Commonwealth relationships. Our research will provide an objective benchmark against which to evaluate these historical associations and the choices before publics.

Education and culture: The project will have educational and cultural impact well beyond its relevance to current events. Queen's University will provide central support for one leveraged PhD studentship between 2018 and 2021 in conjunction with the project. In connection with the University of Pennsylvania knowledge exchange, we shall arrange a multi-presenter, high-profile lecture series on global economic order management and production. The series will be hosted at the Lauder Institute in partnership with the Perry World House Center and made available online. To interject in cultural debates and projects, we will engage the Institute for Commonwealth Studies and the British Documents on the End of Empire Project (BDEEP). We will also make a poster for Commonwealth museums.

Research clusters and networks: The project will speak to issues of global importance, involving collaborators and partnerships across the world, presentations in North America and Europe, a new UK-based research cluster, and an invaluable network created through the Howard Marks Chair in Economic History at the University of Pennsylvania.

Publications

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