American hegemony: intellectual property rights, dollar centrality, and infrastructural power

Abstract

How does dollar centrality persist in the face of continuous US current account deficits and a steadily worsening net international investment position? Two mechanisms create a structural basis for dollar centrality, explaining how dollars enter global credit markets and why surplus countries continue to hold dollar-denominated assets. First, institutional structures deriving from late development suppress domestic demand in major current account surplus countries, making them reliant on external demand for growth. Local banks recycle those dollars into the global economy, creating huge dollar liabilities and assets on their balance sheets. This locks them into continued use of the dollar and reliance on the US Federal Reserve during crises. Second, US firms participating in the global unbundling of production have constructed commodity chains in which they capture disproportionate shares of global profits through their control over Intellectual property. These profits sustain valuations and thus the attractiveness of dollar-denominated assets. Routinization in use of the dollar and compliance with Trade-Related Aspects of Intellectual Property Rights (TRIPS) and US controlled commodity chains creates infrastructural power in Michael Mann’s sense. This routinization sustains US geo-economic power in the face of persistent current account deficits and growing net international debt relative to US gross domestic product.

Keywords:

• Infrastructural power
• USA
• intellectual property rights
• money
• reserve currency
• international monetary system

Acknowledgements

First and foremost, thanks to Randall Germain (especially via the influence of three joint papers). Thanks also to Jon Ashley for help with data, and to Iain Hardie, Craig Murphy, Carla Norrlof, Ronen Palan, Joc Pixley, Elizabeth Thurbon, Linda Weiss, and the anonymous reviewers for helpful comments. This paper is obviously indebted to the work of Susan Sell and Shelley Hurt. Earlier versions were presented at the International Studies Association annual meeting in Hong Kong (2017) and San Francisco (2018) as well as a number of universities and I thank all participants.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 Free exchange: It's been a privilege. (2017, February 9).  The Economist, 422(9027): 65.

2 The focus on C. Fred Bergsten here is deliberate: He is a voice of official Washington, having worked at and run (1981–2012) the (Peterson) Institute for International Economics as well as having worked at the Brookings Institution (1972–1976), the Council on Foreign Relations, the National Security Council (1969–1971), the Treasury Department (1977–1981) and on various quasi-public elite consultative councils (e.g. the President's Advisory Committee on Trade Policy and Negotiations).

3 That said, the 2018 trade dispute with China has aspects intended to protect US dominance in the technology sector and to reinforce protections for US IPRs in the face of China’s Made in China 2025 plan.

4 A longstanding stream of argument deriving from Despres, Kindleberger and Salant (1966) suggests that the United States offers risk intermediation services to the world, trading safe assets for riskier ones. While this is somewhat plausible in the context of the 1960s cold war and the limited deficits noted in the text, it is implausible if you fear dollar depreciation, deficits and financial crises in the post-cold war environment.

5 Conference Board Total Economy Database, March 2018 @ https://www.conference-board.org/data/economydatabase/index.cfm?id=27762.

6 Thus Bourdieu (2012, p. 65–83 and especially at p. 69) notes that most ‘fiscalist’ explanations of state-ness and state-building inevitably end up talking about the legitimacy of taxation and thus bringing in non-material, symbolic representations of power without which the material side of the state will founder.

7 The Canadian and Australian dollar also function as secondary global reserve currencies in proportions slightly above Canada’s and Australia’s share of global GDP. By contrast use of the Euro is proportional to the EU or eurozone share of global GDP. The Pound, Yen, Swiss franc and Renminbi (RMB) are underweight, the RMB grossly so. In foreign exchange transactions, all but the RMB are overweight.

8 IMF World Economic Outlook database at https://www.imf.org/external/pubs/ft/weo/2018/02/weodata/WEOOct2018all.xls

9 Bank for International Settlements at https://stats.bis.org/statx/srs/table/f2.4

10 Daily Shot. (2018, 4 May 2018). Wall Street Journal. Retrieved from https://blogs.wsj.com/dailyshot/2018/05/04

11 Thanks to Randall Germain for this lovely phrase.

12 http://www.oecd.org/sti/ind/measuring-trade-in-value-added.htm.

13 Data from IMF World Economic Outlook database at https://www.imf.org/external/pubs/ft/weo/2018/02/weodata/WEOOct2018all.xls. Real local currency is the appropriate metric for measuring growth as it eliminates exchange rate distortions and the assumptions built into PPP conversions and as most consumption in OECD economies is locally produced.

14 A Tale of two Washingtons. (2018, 8 March). Economist. https://www.economist.com/united-states/2018/03/08/it-make-sense-for-amazon-to-build-its-second-hq-near-washington.

15 All data from the Forbes Global 2000 are author calculations from 13 years of the FG2k list starting in 2006; the list is retrospective to the prior year. For the selection methodology see Scott DeCarlo, ‘Methodology: How We Crunch the Numbers,’ Forbes, 4/18/2012, p. 36. Using thirteen years of FG2k data reduces distortions from the business cycle – most notably the 2010 Great Recession – and from random variation in a given firm’s annual profits.

Additional information

Funding

The Otto Mønsteds Fond, Copenhagen Business School and the University of Virginia Center for Global Inquiry and Innovation provided time, space and money to write the first draft of this article. The Fulbright Research Chair at the Balsillie School of International Affairs, Waterloo, Canada and a University of Virginia Sesquicentennial Fellowship provided time to revise the manuscript.

Notes on contributors

Herman Mark Schwartz

Herman Mark Schwartz is Professor of Politics at the University of Virginia. He is author of In the Dominions of Debt (Cornell University Press, 1989), States vs. Markets (MacMillan, 2018) and Subprime Nation: American Power, Global Capital, and the Housing Bubble (Cornell University Press, 2009). He has also edited four books and written over 60 articles and chapters. Website: http://www.people.virginia.edu/∼hms2f.