Hostname: page-component-7c8c6479df-ph5wq Total loading time: 0 Render date: 2024-03-29T06:43:16.729Z Has data issue: false hasContentIssue false

The Democratic Advantage: Institutional Foundations of Financial Power in International Competition

Published online by Cambridge University Press:  19 February 2003

Get access

Abstract

Despite their presumed liabilities, institutions associated with democracy serve as a source of power in prolonged international competition by increasing the financial resources that states can bring to bear. The theory of sovereign debt suggests that a state's ability to raise money through public borrowing is enhanced when debtholders have mechanisms for sanctioning state leaders in the event of default. Institutions associated with liberal government provide such mechanisms. All other things being equal, states that possess these institutions enjoy superior access to credit and lower interest rates than do states in which the sovereign has more discretion to default unilaterally. Liberal states can not only raise more money from a given economic base but can also pursue tax-smoothing policies that minimize economic distortions. The ability to finance competition in a manner that is consistent with long-term economic growth generates a significant advantage in prolonged rivalries. These claims are explored by analyzing the Anglo-French rivalry (1688–1815) and the Cold War.

Type
Articles
Copyright
Copyright © The IO Foundation 2003

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alesina, Alberto. 1988. The End of Large Public Debts. In High Public Debt. The Italian Experience, edited by Giavazzi, Francesco and Spaventa, Luigi, 3479. Cambridge: Cambridge University Press.Google Scholar
Alesina, Alberto, De Broeck, Mark, Prati, Alessandro, and Tabellini, Guido. 1992. Default Risk on Government Debt in OECD Countries. Economic Policy 15:428–63.Google Scholar
Anderson, Olive. 1967. A Liberal State at War. New York: St. Martin's, Press.Google Scholar
Barbour, Violet. 1950. Capitalism in Amsterdam in the 17th Century. Baltimore, Md.: Johns Hopkins University Press.Google Scholar
Barro, Robert J. 1979. On the Determination of the Public Debt. Journal of Political Economy 87 (5):940–71.CrossRefGoogle Scholar
Behrens, Catherine Abigail, Betty. 1967. The Ancien Regime. New York: Harcourt, Brace & World.Google Scholar
Bergson, Abram. 1989. Planning and Performance in Socialist Economies The USSR and Eastern Europe Boston: Unwin Hyman.Google Scholar
Bien, David D. 1987. Offices, Corps, and a System of State Credit: The Uses of Privilege Under the Ancien Regime. In The French Revolution and the Creation of Modern Political Culture, Vol 1, edited by Baker, Keith, 89114. Oxford, England: Pergamon Press.Google Scholar
Birman, Igor. 1980. The Financial Crisis in the USSR. Soviet Studies 32 (1):84105.CrossRefGoogle Scholar
Birman, Igor. 1981. Secret Incomes of the Soviet State Budget. The Hague, Netherlands: Martinus Nijhoff.CrossRefGoogle Scholar
Bordo, Michael D., and White, Eugene N.. 1991. A Tale of Two Currencies: British and French Finance During the Napoleonic Wars. The Journal of Economic History 51 (2):303–16.CrossRefGoogle Scholar
Brewer, John. 1988. The Sinews of Power War, Money, and the English State, 16881783. New York: Knopf..Google Scholar
Brooks, Stephen G., and Wohlforth, William C.. 2000./2001. Power, Globalization, and the End of the Cold War: Reevaluating a Landmark Case for Ideas. International Security 25 (3):553.CrossRefGoogle Scholar
Bueno de Mesquita, Bruce, Morrow, James D., Siverson, Randolph M., and Smith, Alastair. 1999. An Institutional Explanation of the Democratic Peace. American Political Science Review 93 (4):791807.CrossRefGoogle Scholar
Bueno de Mesquita, Bruce, and Siverson, Randolph M.. 1995. War and the Survival of Political Leaders: A Comparative Study of Regime Types and Political Accountability. American Political Science Review 89 (4):841–55.CrossRefGoogle Scholar
Bulow, Jeremy, and Rogoff, Kenneth. 1989. A Constant Recontracting Model of Sovereign Debt. Journal of Political Economy 97 (1):155–78.CrossRefGoogle Scholar
Carroll, Michael. 1996. Containing Default. Institutional Investor 30 (4):5061.Google Scholar
Chase-Dunn, Christopher. 1981. Interstate System and Capitalist World-Economy: One Logic or Two? International Studies Quarterly 25 (1):119–42.Google Scholar
Conklin, James. 1998. The Theory of Sovereign Debt and Spain Under Philip II. Journal of Political Economy 106 (3):483513.CrossRefGoogle Scholar
Cooley, Thomas F., and Ohanian, Lee E.. 1997. Postwar British Economic Growth and the Legacy of Keynes. Journal of Political Economy 105 (3):439–72.CrossRefGoogle Scholar
Crafts, N. F. R. 1985. British Economic Growth During the Industrial Revolution. New York: Oxford University Press.Google Scholar
Dahl, Robert A. 1971. Polyarchy Participation and Opposition. New Haven, Conn.: Yale University Press.Google Scholar
de Tocqueville, Alexis. [1831.] 1969. Democracy in America. Translated by Lawrence, George. Garden City, N.Y.: Doubleday.Google Scholar
Dickson, P., and Sperling, J.. 1970. War Finance: 1689–1715. In The New Cambridge Modern History, Vol. 6, edited by Bromley, J. S., 284342. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Dickson, Peter. 1967. The Financial Revolution in England: A Study in the Development of Public Credit, 1688–1756. New York: St. Martin's Press.Google Scholar
Doyle, Michael W. 1983. Kant, Liberal Legacies, and Foreign Affairs: Part 1. Philosophy and Public Affairs 12 (3):205–35.Google Scholar
Eaton, Jonathan, Gersovitch, Mark, and Stiglitz, Joseph. 1986. The Pure Theory of Country Risk. European Economic Review 30 (3):481513.CrossRefGoogle Scholar
Economic Report of the President, 2000. Washington, D.C.: U.S. Government Printing Office.Google Scholar
Ellman, Michael. 1992. Money in the 1980s: From Disequilibrium to Collapse. In The Disintegration of the Soviet Economic System, edited by Ellman, Michael and Kontorovich, Vladimir, 106–33. London: Routledge.Google Scholar
Evangelista, Matthew. 1993. Internal and External Constraints on Grand Strategy: The Soviet Case. In The Domestic Bases of Grand Strategy, edited by Rosecrance, Richard and Stein, Arthur A., 154–78. Ithaca, N.Y.: Cornell University Press.Google Scholar
Fearon, James D. 1994. Domestic Political Audiences and the Escalation of International Disputes. American Political Science Review 88 (3):577–92.CrossRefGoogle Scholar
Ferguson, Niall. 1999. The Pity of War. New York: Basic Books.Google Scholar
Finel, Bernard I., and Lord, Kristin. 1999. The Surprising Logic of Transparency. International Studies Quarterly 43 (2):315–39.CrossRefGoogle Scholar
Friedrich, Carl Joachim. 1938. Foreign Policy in the Making The Search for a New Balance of Power. New York: Norton.Google Scholar
Fujihira, Shinju. 2000. Conscripting Money: Total War and Fiscal Revolution in the Twentieth Century. Ph.D. diss., Princeton University, Princeton, N.J..Google Scholar
Gaddis, John Lewis. 1992. International Relations Theory and the End of the Cold War. International Security 17 (3):558.CrossRefGoogle Scholar
Gilpin, Robert. 1981. War and Change in World Politics. New York: Cambridge University Press.CrossRefGoogle Scholar
Goertz, Gary, and Diehl, Paul F.. 1993. Enduring Rivalries: Theoretical Constructs and Empirical Patterns. International Studies Quarterly 37 (2):147–71.CrossRefGoogle Scholar
Greif, Avner, Milgrom, Paul, and Weingast, Barry R.. 1994. Coordination, Commitment and Enforcement. The Case of the Merchant Guild. Journal of Political Economy 102 (4):745–76.CrossRefGoogle Scholar
Groth, Alexander J. 1999. Democracies Against Hitler Myth, Reality, and Prologue Brookfield, Vt.: Ashgate.Google Scholar
Gunther, Gerald. 1980. Cases and Materials on Constitutional Law. 10th ed. Mineola, N.Y.: Foundation Press.Google Scholar
Gurr, Ted Robert. 1990. Polity II: Political Structures and Regime Change, 1800–1986. Ann Arbor, Mich: Inter-University Consortium for Political and Social Research.Google Scholar
Harrison, Mark. 1986. The USSR State Budget Under Late Stalinism (1945–55): Capital Formation, Government Borrowing and Monetary Growth. Economics of Planning 20 (3):179205.CrossRefGoogle Scholar
Hoffman, Philip. 1994. Early Modern France, 1450–1700. In Fiscal Crises, Liberty, and Representative Government, edited by Hoffman, Philip and Norberg, Kathryn, 226–52. Stanford, Calif.: Stanford University Press.CrossRefGoogle Scholar
Hoffman, Philip T., and Rosenthal, Jean-Laurent. 1997. The Political Economy of Warfare and Taxation in Early Modern Europe: Historical Lessons for Economic Development. In The Frontiers of the New Institutional Economics, edited by Drobak, John N. and Nye, John V. C., 3156. San Diego, Calif.: Academic Press.Google Scholar
Hoffman, Philip T., Postel-Vinay, Gilles, and Rosenthal, Jean-Laurent. 1998. Priceless Markets: Credit in Paris, 1660–1869. Unpublished manuscript, California Institute of Technology, Pasadena.Google Scholar
Holzman, Franklyn D. 1957. The Soviet Bond Hoax. Problems of Communism 6 (5):4749.Google Scholar
Homer, Sidney, and Sylla, Richard. 1991. A History of Interest Rates. 3d ed. New Brunswick, N.J.: Rutgers University Press.Google Scholar
Jones, James R. 1972. The Revolution of 1688 in England. London: Weidenfeld and Nicolson.Google Scholar
Kant, Immanuel [1795.] 1983. To Perpetual Peace: A Philosophical Sketch. In Perpetual Peace and Other Essays on Politics, History, and Morals, translated by Humphrey, Ted, 107–43. Indianapolis, Ind.: Hacket.Google Scholar
Kegley, Charles W. Jr., 1994. How Did the Cold War Die? Principles for an Autopsy. Mershon International Studies Review 38 (1):1141.CrossRefGoogle Scholar
Kennan, George F. 1977. The Cloud of Danger Current Realities of American Foreign Policy. Boston: Little, Brown.Google Scholar
Kennedy, Paul. 1987. The Rise and Fall of the Great Powers Economic Change and Military Conflict from 1500 to 2000. New York: Random House.Google Scholar
Keohane, Robert O. 1986. Theory of World Politics: Structural Realism and Beyond. In Neo-Realism and Its Critics, edited by Keohane, Robert O., 158203. New York: Columbia University Press.Google Scholar
King, Gary, Keohane, Robert O., and Verba, Sidney. 1994. Designing Social Inquiry Scientific Inference in Qualitative Research. Princeton, N.J.: Princeton University Press.CrossRefGoogle Scholar
Kugler, Jacek, and Domke, William. 1986. Comparing the Strength of Nations. Comparative Political Studies 19 (1):3969.CrossRefGoogle Scholar
Lake, David 1992. Powerful Pacifists: Democratic States and War. American Political Science Review 86(1):2437.CrossRefGoogle Scholar
Lippmann, Walter. 1955. Essays in the Public Philosophy. Boston: Little, Brown.Google Scholar
Lipset, Seymour Martin. 1960. Political Man The Social Bases of Politics. Garden City, N.Y.: Doubleday.Google Scholar
Lowi, Theodore. 1967. Making Democracy Safe for the World: National Politics and Foreign Policy. In Domestic Sources of Foreign Policy, edited by Rosenau, James N., 295331. New York: Free Press.Google Scholar
Lucas, Robert E., and Stokey, Nancy L.. 1983. Optimal Fiscal and Monetary Policy in an Economy Without Capital. Journal of Monetary Economics. 12 (1):5593.CrossRefGoogle Scholar
McKinnon, Ronald I. 1993. The Order of Economic Liberalization Financial Control in the Transition to a Market Economy. 2d ed. Baltimore, Md.: Johns Hopkins University Press.Google Scholar
Millar, James R. 1990. The Soviet Economic Experiment. Edited by Linz, Susan J.. Urbana University of Illinois Press.Google Scholar
Mitchell, B. R. 1988. British Historical Statistics. Cambridge: Cambridge University Press.Google Scholar
Modelski, George. 1978. The Long Cycle of Global Politics and the Nation-State. Comparative Studies in Society and History 20 (2):214–35.CrossRefGoogle Scholar
Modelski, George. 1983. Long Cycles of World Leadership. In Contending Approaches to World Systems Analysis, edited by Thompson, William R., 115–39. Beverly Hills, Calif.: Sage Publications.Google Scholar
Modelski, George, and Thompson, William R.. 1988. Seapower in Global Politics, 1494–1993. Seattle: University of Washington Press.CrossRefGoogle Scholar
Moore, Barrington Jr., 1966. Social Origins of Dictatorship and Democracy Lord and Peasant in the Making of the Modern World. Boston: Beacon Press.Google Scholar
Morgenthau, Hans J. 1973. Politics Among Nations The Struggle for Power and Peace. 5th ed. New York: Knopf..Google Scholar
Moskoff, William. 1993. Hard Times Impoverishment and Protest in the Perestroika Years The Soviet Union 1985–1991. Armonk, N.Y.: M. E. Sharpe.Google Scholar
Nincic, Miroslav. 1992. Democracy and Foreign Policy The Fall of Political Realism. New York: Columbia University Press.Google Scholar
North, Douglass C. 1981. Structure and Change in Economic History. New York: Norton.Google Scholar
North, Douglass C. Institutions, Institutional Change, and Economic Performance. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
North, Douglass C., and Weingast, Barry R.. 1989. Constitutions and Commitment. The Evolution of Institutions Governing Public Choice in Seventeenth-Century England. Journal of Economic History 49 (4):803–32.CrossRefGoogle Scholar
Ofer, Gur. 1989. Budget Deficit, Market Disequilibrium and Soviet Economic Reforms. Soviet Economy 5 (2):107–61.CrossRefGoogle Scholar
Organski, A. F. K., and Kugler, Jacek. 1980. The War Ledger Chicago: University of Chicago Press.CrossRefGoogle Scholar
Parker, Geoffrey. 1988. The Military Revolution Military Innovation and The Rise of the West, 1500–1800. Cambridge: Cambridge University Press.Google Scholar
Partell, Peter J., and Palmer, Glenn. 1999. Audience Costs and Interstate Crises: An Empirical Assessment of Fearon's Model of Dispute Outcomes. International Studies Quarterly 43 (2):389405.CrossRefGoogle Scholar
Rasler, Karen A., and Thompson, William R.. 1983. Global Wars, Public Debts, and the Long Cycle. World Politics 35 (4):489516.CrossRefGoogle Scholar
Rasmusen, Eric. B. 1992. The Strategy of Sovereign-Debt Renegotiation. In Country-Risk Analysis A Handbook, edited by Solberg, Ronald L., 161–85. London: Routledge.Google Scholar
Reed, William, and Clark, David H.. 2000. War Initiators and War Winners. The Consequences of Linking Theories of Democratic War Success. Journal of Conflict Resolution 44 (3):378–95.CrossRefGoogle Scholar
Reiter, Dani, and Stam, Allan C.. 2002. Democracies at War Princeton, N.J.: Princeton University Press.CrossRefGoogle Scholar
Riley, James C. 1980. International Government Finance and the Amsterdam Capital Market, 1740–1815. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Riley, James C. 1986. The Seven Year's War and the Old Regime in France The Economic and Financial Toll Princeton, N.J.. Princeton University Press.Google Scholar
Riley, James C. 1987. French Finances, 1727–1768. Journal of Modern History 59 (2):209–43.CrossRefGoogle Scholar
Root, Hilton L. 1989. Tying the King's Hands. Credible Commitments and Royal Fiscal Policy During the Old Regime. Rationality and Society 1 (2) 240–58.CrossRefGoogle Scholar
Root, Hilton L. 1994. The Fountain of Privilege: Political Foundations of Markets in Old Regime France and England. Berkeley: University of California Press.Google Scholar
Sargent, Thomas, and Velde, Francois R.. 1995. Macroeconomic Features of the French Revolution. Journal of Political Economy 103 (3):474518.CrossRefGoogle Scholar
Schultz, Kenneth A. 2001. Democracy and Coercive Diplomacy. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Schultz, Kenneth A., and Weingast, Barry R.. 1998. Limited Governments, Powerful States. In Strategic Politicians, Institutions, and Foreign Policy, edited by Siverson, Randolph M., 1549. Ann Arbor: University of Michigan Press.Google Scholar
Shelton, Judy. 1989. The Coming Soviet Crash Gorbachev's Desperate Pursuit of Credit in Western Financial Markets. New York: Free Press.Google Scholar
Siverson, Randolph M. 1995. Democracies and War Participation: In Defense of the Institutional Constraints Argument. European Journal of International Relations 1 (4):481–89.CrossRefGoogle Scholar
Snyder, Jack. 1991. Myths of Empire. Ithaca, N.Y.: Cornell University Press.Google Scholar
Stam, Allan C. 1996. Win, Lose, or Draw Domestic Politics and the Crucible of War. Ann Arbor: University of Michigan Press.CrossRefGoogle Scholar
Taylor, A. J. P. 1962. The Origins of the Second World War. New York: Atheneum.Google Scholar
Thompson, William R. 1983a. Uneven Economic Growth, Systemic Challenges, and Global Wars. International Studies Quarterly 27 (3):341–55.CrossRefGoogle Scholar
Thompson, William R. 1983b. The World-Economy, the Long Cycle, and the Question of World System Time. In Foreign Policy and the Modern World-System, edited by McGowan, Pat and Kegley, Charles W. Jr., 3562. Beverly Hills, Calif.: Sage Publications.Google Scholar
Thucydides, 1950. The History of the Peloponnesian War. Translated by Crawley, Richard. New York: Dutton.Google Scholar
Tracy, James D. 1985. A Financial Revolution in Habsburg Netherlands. Berkeley: University of California Press.CrossRefGoogle Scholar
U.S. Arms Control and Disarmament Agency (ACDA). 1994. World Military Expenditures and Arms Transfers. Washington, D.C.: U.S. Government Printing Office.Google Scholar
U.S. Central Intelligence Agency (CIA). 1992. Handbook of International Economic Statistics, 1991. Washington, D.C.: U.S. Government Printing Office.Google Scholar
U.S. Central Intelligence Agency/Defense Intelligence Agency (CIA/DIA). 1990. The Soviet Economy Stumbles Badly in 1989. Washington, D.C.: Central Intelligence Agency.Google Scholar
U.S. Congress. Joint Economic Committee. 1990. Measures of Soviet Gross National Product in 1982 Prices. 101st Cong., 2d sess. November.Google Scholar
U.S. Office of Management and Budget (OMB). 2002. Budget for the Fiscal Year 2003, Historical Tables Washington, D.C.: U.S. Government Printing Office.Google Scholar
Veitch, John M. 1986. Repudiations and Confiscations by the Medieval State. The Journal of Economic History 46 (1):3136.CrossRefGoogle Scholar
Velde, Francois R., and Weir, David R.. 1992. The Financial Market and Government Debt Policy in France, 1746–1793. The Journal of Economic History 52 (1):1819.CrossRefGoogle Scholar
Wallerstein, Immanuel. 1979. The Capitalist World–Economy Cambridge: Cambridge University Press.Google Scholar
Wallerstein, Immanuel. 1980. Mercantilism and the Consolidation of the European World Economy, 1600–1750. New York: Academic Press.Google Scholar
Waltz, Kenneth N. 1979. Theory of International Politics. New York: Random House.Google Scholar
Weingast, Barry R. 1997a. The Political Foundations of Limited Government: Parliament and Sovereign Debt in 17th and 18th Century England. In The Frontiers of the New Institutional Economics, edited by Drobak, John and Nye, John, 213–46. San Diego, Calif.: Academic Press.Google Scholar
Weingast, Barry R. 1997b. The Political Foundations of Democracy and the Rule of Law. American Political Science Review 91 (2):245–63.CrossRefGoogle Scholar
Weir, David R. 1989. Tontines, Public Finance, and Revolution in France and England, 1688–1789. The Journal of Economic History 49 (1):98101.CrossRefGoogle Scholar
Wohlforth, William C. 1995. Realism and the End of the Cold War. International Security 19 (3):91129.CrossRefGoogle Scholar