States And Markets By Susan Strange

[Marlys Stotesberry]

She helped create the British International Studies Association. She was the first woman to hold the Montague Burton Professor of International Relations at the London School of Economics and was the first female academic to have a professorship named after her at the LSE.[4]

Susan Strange was born on 9 June 1923 in Langton Matravers (County Dorset). She was the daughter of English aviator Louis Strange. She went to the Royal High School, Bath, and to the University of Caen in France,[5] and graduated with a bachelor's degree in economics from the London School of Economics (LSE) during the Second World War.[6] Like Robert W. Cox, the other founder of British International Political Economy, she never obtained a PhD.[7]

Susan Strange earned a first in economics at the London School of Economics (LSE) in 1943.[3] She raised six children and worked as a financial journalist for The Economist, then The Observer until 1957. At The Observer, she became the youngest White House correspondent of her time.[3] She began lecturing on International Politics at the University College London in 1949.[3]

In 1964, she became a full-time researcher at Chatham House (formally The Royal Institute of International Affairs).[3][2][8] At the Chatham House, she authored Sterling and British Policy (1971).[3] She set up an influential research group on IPE at the Chatham House in 1971.[3] She played a role in the establishing of the journal Review of International Political Economy, which is the leading journal dedicated to IPE.[3]

She served as professor of international political economy at the European University Institute in Florence, Italy, from 1989 to 1993. Strange's final academic post, which she held from 1993 until her death in 1998, was as chair of international relations and professor of international political economy at the University of Warwick, where she built up the graduate programme in International Political Economy.[10] She also taught in Japan, where between 1993 and 1996 she was several times guest lecturer at Aoyama Gakuin University in Tokyo.

She was a major figure in the professional associations in both Britain and the United States. She was an instrumental founding member and the first treasurer of the British International Studies Association,[3] and served as the third female president of the International Studies Association in 1995.[11]

Strange was an influential thinker on global affairs.[13] She played a central role in developing international political economy (IPE) as a field of study,[2][14] and is a key figure in political economy approaches to security studies.[15] Her 1970 article, "International Economics and International Relations: A Case of Mutual Neglect", laid out her arguments for the need of a discipline of IPE.[3]

She argued that power was central to international political economy.[16] She claimed that in general, "economists simply do not understand how the global economy works" due to a poor understanding of power and an over-reliance on abstract economic models. However, she noted that political scientists also have a woeful understanding of international economics due to their emphasis on institutions and power. Thus she became one of the earliest campaigners advocating the necessity of studying both politics and economics for international relations scholars.[2] She influenced scholars such as Robert Gilpin.[17] She was a critic of regime theory, arguing that the scholarship on regimes was too state-centric and carried a hidden bias in favor of maintaining U.S. hegemony.[18]

In the 1980s, she disagreed with claims by other International Studies scholars that U.S. hegemony was on the decline.[19] Strange was skeptical of static indicators of power, arguing that it was structural power that mattered.[20][21] In particular, interactions between states and markets mattered.[22] She pointed to the superiority of the American technology sector, dominance in services, and the position of the U.S. dollar as the top international currency as real indicators of lasting power.[19]

Strange's key contribution to IPE was on the issue of power, which she considered essential to the character and dynamics of the global economy.[3] She distinguished between relational power (the power to compel A to get B to do something B does not want to do) and structural power (the power to shape and determine the structure of the global political economy).[3][21]

Her analysis in States and Markets (1988) focused on what she called the "market-authority nexus", the see-saw of power between the market and political authority. She maintained that the global market, relative to the nation state, had gained significant power since the 1970s and that a "dangerous gap" was emerging between the two. She considered nation states inflexible, limited by territorial boundaries in a world of fragile intergovernmental co-operation; "Westfailure" is what she called Westphalia. Markets would be able to flout regulations and reign free, creating more uncertainty and risk in an already chaotic environment.

In Casino Capitalism (Blackwells, 1986), Susan Strange problemizes the nonsystem that the international monetary system has become. She compares it with a casino whereon the foreign exchange plays as snakes and ladders. She sets the stakes that international finance has become stronger than states and has been deregularized. The Smithsonian Agreement has been weak leading further to benign neglect from the US, the Eurodollar market and OPEC has been strong undermining the Bretton Woods system. There is no state or actor governing the international monetary system and the international financial markets. American banks are made free to pursue their interests since the 1980s strengthened by the possibility to finance American bonds in the world, making a carousel of bond trading with the OPEC and the Eurodollar market. The forces of market integration set by the Bretton Woods system was going through.[24]

Mad Money (University of Manchester Press, 1998) updated the analysis of Casino Capitalism to the late 1990s. At the time of her death, she was working on an exposition of her theory of the international money system.[25] Strange argued in Mad Money that complex derivatives, such as credit default swaps, had increased systemic risk in the global financial system. She has been described as a prescient thinker who "foresaw multiple aspects of the global financial crisis of 2008 and its aftermath".[1]

In 1942, she married Denis Merritt (died 1993); they had one son and one daughter, and the marriage was dissolved in 1955. In 1955 she married Clifford Selly, with whom she had three sons, and one daughter.[6]

The US dollar has been one of the defining features of US hegemony in the world economy. Unlike her US contemporaries,1 Strange emphasized the role of the US dollar back in the 1980s as inseparable from persistent US hegemony in the world economy. Since then, the close association between the US dollar and US hegemony has continued to be discussed and debated in the IPE literature. The 2008 financial crisis has revitalized this debate in the context of the rising China (Eichengreen 2011; Vermeiren 2013; Kirshner 2014; Cohen and Benney 2014; Prasad 2014; Oatley et al. 2013; Winecoff 2015; Fichtner 2016; Hardie and Maxfield 2016; Schwartz 2016, 2019). One of the key aspects of this debate is whether US budget deficits and current account deficits should be seen as a warning to the US dollar (i.e., Norrlof 2014). Most economists view these deficits as a burden on the US economy which undermines foreign confidence in the US dollar (Bergstein 2009; Gourinchas et al 2022). Others who sidestep this matter view the contemporary US dollar as still dominant in global finance (Cohen and Benney 2014; Helleiner 2016; Schwartz 2016).

On the other, a growing number of scholars have emphasized the persistent US hegemony in global finance despite its debt. Carla Norrlof (2014) argued that this is a direct result of US economic size and military power. Her argument is primarily based on the measure of national economic variables such as GDP, capital markets, and military spending (ibid, 1048). Others have emphasized that persistent US financial power should be viewed as a transnational phenomenon that extends well beyond the US. The 2008 global financial crisis has rather reinforced the key position of US power in global finance networks (Fichtner 2017; Winecoff 2015, 2020). For instance, Fichtner (2016) argued that US financial power is derived from Anglo-American financial networks, which include five English-speaking countries and offshore financial centers. Similarly, others view the contemporary global financial system as a hierarchical structure in which the US is positioned at the top of the global financial system (Oatley et al. 2013; Winecoff 2015; 2020).

Up until the early 1960s, foreigners held British pounds in their reserves, accounting for about 40 percent of world foreign exchange reserves (Schenk 2010, 22-23). The foreign holdings of British pounds are surprisingly as much as US dollars held by others during the Bretton Woods era. The reserve status of international money does not tell us much about how international financial markets can be monetarily featured; that is, how market actors (public and private) actually use international money to issue credit and debt relations across borders. The dominant conception of the US dollar as an international reserve currency rather obscures its expanding role in the making of international financial markets. Therefore, it is essential to identify a crucial feature of the US dollar distinguished from the British pound during the 1960s, even though they shared the international reserve status back in the interwar period.

Second, the US state possesses the capacity to maintain contracts (foreign credit and debt relations) denominated in the US dollar in international financial markets. The most sought forms of the US dollar in times of uncertainty are produced only within the US: the origin of the US dollar as unit of account. Short-term US Treasury debts became de facto international money and risk-free assets in emerging international financial markets of the 1970s (Lim 2022). During the decade, many countries, such as Germany and Japan, purchased a growing volume of US Treasury debts (BIS 1973). US Treasury debts were highly demanded collateral for private market actors to facilitate financial transactions (Gabor 2016). The US Treasury has met the growing demand for Treasury debts by globalizing the US government debt markets. From the mid-1970s, the US state has succeeded in selling long-term debts on a regular and predictable basis, called auction sales (Garbade 2021, 423). The regularization of long-term US Treasury debts reduced the cost of financing government debt and promoted economic growth (Allan 1976). US massive military spending during the 1980s made it possible to finance growing US budget deficits by effectively selling US debts. In other words, US military spending cannot be separated from the linkage between the international role of the US dollar and the internationalization of the US Treasury debt market.

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