The global company town: An alternative perspective of hegemony, the liberal economic order, and the core-periphery gap

Abstract

This study introduces a new theory, called group hegemony, that explains how a group of wealthy countries maintains the liberal economic order, and how this order helps sustain the economic disparity between the core and the periphery in the post-WWII era. The theory of group hegemony advances three propositions. First, the Group of Seven (G-7) has replaced the US as the hegemon. The evidence indicates that a hegemon exists. The concentration of power within the core has remained relatively constant since the early 1960s. The US is not responsible for this concentration of power since its economic superiority has declined, whereas the power of the G-7 has remained constant. The G-7 accounts for about three-fourths of the core's power throughout the post-war era even though it constitutes less than one-third of the core's membership. In the early post-war period, the majority of the G-7's power was attributed to the US, but by the mid-1970s, power was more evenly distributed among the G-7 countries. The evidence indicates that the G-7 is the group hegemon. The second proposition contends that the group hegemon maintains the stability of the liberal economic order. The G-7 is the only group with enough power to provide liquidity, manage exchange rates, maintain large open markets, and supply foreign investment. The G-7 countries coordinate their policies when necessary to stabilize the liberal economic order. They collectively intervened in the 1970s and 1980s to stabilize exchange-markets. They coordinated their policies to offset the stock market crash in 1987. They also helped ease the debt crisis, finance the Gulf War, and aid Russia and other economies in transition. The third proposition holds that the rules governing the liberal order help sustain the gap between the core and the periphery. The rules are biased in favor of the core. These rules include preferential treatment for core members, tariff peaks on goods of particular export interest to developing countries, and tariff escalation. The liberal economic order benefits all, but some more than others.