Toward a political economy of complex interdependence
| DOI | 10.1177/1354066119846553 |
| Author | Thomas Oatley |
| Published date | 01 December 2019 |
| Date | 01 December 2019 |
https://doi.org/10.1177/1354066119846553
European Journal of
International Relations
2019, Vol. 25(4) 957 –978
© The Author(s) 2019
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DOI: 10.1177/1354066119846553
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Toward a political economy of
complex interdependence
Thomas Oatley
Tulane University, USA
Abstract
How should we theorize about international political economy in an era of complex
interdependence? The global economy is much more interdependent today than it
was 40 years ago. As a result, there is a widening appreciation that we need new
theoretical tools to understand how complex interdependence arose, how it operates,
and where it might be headed. I argue that to develop such tools, we must embrace
new theoretical logics that more readily accommodate and explain change. I develop
this point by drawing on complexity theories, ecology, and information theory. I first
develop the core elements of a complexity-based approach and contrast it to the central
assumptions of the Open Economy Politics approach. I then illustrate this complexity-
oriented approach by using the logic of coevolution and the information–entropy cycle
to explain key elements in the development of the 2008 global financial crisis.
Keywords
Complexity, global finance, globalization, interdependence, political economy, theory
Introduction
How do we theorize about the global political economy in an age of complex interde-
pendence? Historically, international political-economy scholarship has conceptualized
interdependence as increasing connectivity with costly consequences between national
economies generated by rising cross-border flows of goods, services, money, and people
(Keohane and Nye, 2001: 7–9). Yet, although connectivity with costly consequences
constitutes one important element of interdependence, connectivity alone fails to ade-
quately characterize interdependence. The connectivity also has structure. Consider
global financial interdependence. Contemporary global financial interdependence has a
Corresponding author:
Thomas Oatley, Tulane University, 6823 St Charles Ave, New Orleans, Louisiana 70118-5665, USA.
Email: toatley@tulane.edu
846553EJT0010.1177/1354066119846553European Journal of International RelationsOatley
research-article2019
Article
958 European Journal of International Relations 25(4)
strongly hierarchical structure (Kubelec and Sá, 2012; Oatley et al., 2013). The system is
one in which a very small number of national economies occupy roles as global financial
centers, attracting capital from and intermediating capital flows between counterparties
across the entire world. In contrast, most other countries are connected to the center but
are only loosely connected directly to one another. Moreover, this hierarchical structure
is persistent; the global distribution of the stock of cross-national portfolio assets and
liabilities is stable from one period to the next and is further reinforced by additional
flows. Finally, the persistent hierarchical structure exhibits rising heterogeneity across a
variety of scales. Some financial institutions have developed into important global banks,
while most others focus most heavily on national or even subnational business. Some
countries have emerged as global or regional financial centers, while most have not.
Rising differentiation between financial institutions and national financial systems has
led to greater heterogeneity in banking regulation; current rules, for instance, treat sys-
temically important financial institutions (SIFIs) differently than they treat non-SIFIs.
Complex interdependence in the global financial system is thus characterized by a per-
sistent structure of connectivity and rising heterogeneity.
Complex interdependence is reshaping the political economy of finance. Increasingly,
developments within societies are tied to the way in which local financial institutions are
embedded in and seek to exploit their connections to the global financial system.
Icelandic banks, for example, could never have become so highly leveraged between
2006 and 2008 had they not been able to tap into international markets. More broadly,
whether an emerging market economy experiences a credit boom, asset bubble, and
banking crisis often has more to do with developments in the center of the global finan-
cial system than with regulatory characteristics or other dimensions of domestic politics
(Bauerle Danzman et al., 2017). Moreover, the central principles that underpin domestic
banking regulation in most national economies are established through an international
process centered upon the Bank for International Settlements (BIS) and dominated by
actors who represent the interests of the major global financial centers, the US especially
and the European Union (EU) occasionally (Newman and Posner, 2018; Posner, 2009).
Consequently, private actors have mobilized around the BIS in order to shape these inter-
national regulatory frameworks. Therefore, complex interdependence has transformed
the politics of global finance such that one can no longer readily identify distinct domes-
tic and international levels of analysis that one might study in isolation from one another.
Understanding contemporary complex interdependence, both in the specific context
of the global financial system and more broadly in International Political Economics
(IPE), requires us to develop new theory. Existing IPE theory, based largely on the logic
of the Open Economy Politics (OEP) framework, helps us understand what agents want
and how they interact within the parameters of a particular system. However, these main-
stream theoretical models are not very useful for understanding contemporary complex
interdependence because they do not offer analytical purchase on the behavior of sys-
tems or into questions about change.1 That is, if we are to understand global financial
interdependence, we must develop theories about systems that extend well beyond the
state-centered framework that dominates contemporary American IPE and International
Relations (IR). Moreover, the international financial system has changed over time in
fundamentally important ways. It does us no good to assume that the contemporary
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