THE SYSTEM WORKED THE SYSTEM WORKED HOW THE WORLD STOPPED ANOTHER GREAT DEPRESSION DANIEL W DREZNER Oxford University Press is a department of the University of Oxford It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Oxford is a registered trademark of Oxford University Press in the UK and certain other countries Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016 © Oxford University Press 2014 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by license, or under terms agreed with the appropriate reproduction rights organization Inquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Library of Congress Cataloging-in-Publication Data Drezner, Daniel W The system worked : how the world stopped another great depression / Daniel W Drezner pages cm ISBN 978–0–19–537384–4 (hardback : alk paper) Global Financial Crisis, 2008–2009 Financial crises—Government policy Finance—Government policy Recessions—21ST century Economic history—21ST century I Title HB3722.D74 2014 330.9’0511—dc23 2013044640 135798642 Printed in the United States of America on acid-free paper This book is dedicated to Stephen D Krasner, the Graham H Stuart Professor of Political Science at Stanford University, a giant in the study of global political economy and, some moons ago, my dissertation adviser In my professional career, Steve pushed me to think more rigorously and systematically about power than any other colleague It’s payback time CONTENTS Acknowledgments The Puzzle of Successful Global Governance Yes, the System Worked Why the Misperception? The Role of Interest The Role of Power The Role of Ideas Where Do We Go from Here? Notes References Index ACKNOWLEDGMENTS This book has been an intellectual exercise in trying to figure out why I was so wrong six years ago and why so many other smart analysts have been so wrong since Back then, I had a pretty good idea for a book—it would be a clarion call about the sclerotic state of multilateral economic institutions In it, I would sagely observe that the last major burst of international institutional creation had been in the late 1940s and point out that the distribution of power looked a wee bit different in the twenty-first century If current mismatches between global governance structures and the distribution of power were allowed to fester, then those structures would rest upon very shaky foundations The rise of the BRICs clearly mandated such reforms I would warn that although reforming global governance was a thankless task, failure to take action would leave these institutions ill-equipped for a severe global shock Proactive steps would be necessary to prevent the global economy from experiencing the 1930s all over again Before I could start writing in earnest, however, Lehman Brothers went bankrupt, the federal government bailed out AIG, and the Reserve Primary Fund broke the buck My warning was overtaken by events; the severe global shock had happened It was impossible to write a book on global economic governance when the global economy seemed to be melting down in real time So, I stepped away and wrote on some issues that were not changing at the speed of light I paid attention to the 2008 financial crisis and, like most other commentators, took a jaundiced view of how the global political economy was performing I also got distracted by zombies for a spell By the time I doubled back to re-examine the state of global economic governance, I noticed two odd trends First, the closer I looked at the performance of “the system,” the clearer it became that the meltdown I had expected had not come to pass Second, most other observers nonetheless remained deeply pessimistic about the functioning of the global political economy Indeed, book after book on the financial crisis was arguing the exact opposite thesis to my initial impressions I could not blame these commentators for being so pessimistic because I had felt that way too when the crisis began Nevertheless, I had come to believe that I was wrong then and that they are wrong now I have racked up numerous debts during the thinking and writing of The System Worked I am particularly grateful to David McBride at Oxford University Press He was supportive of my original book proposal and even more enthusiastic about what the book turned out to be Most important, Dave displayed superhuman patience while I sorted out exactly what I wanted to write Sarah Rosenthal, Molly Morrison, and Ginny Faber also made superhuman efforts to convert my scribblings into this attractive-looking text you’re now reading I also thank the Fletcher School of Law and Diplomacy and the Michael and Andrea Leven Foundation for enabling me to take a sabbatical year to focus on this project I am particularly grateful to Peter Uvin and Stephen Bosworth, who were, respectively, the academic dean and dean of the Fletcher School during the start of this project They provided unstinting support I will assume that it is simply a coincidence that both leaders left Fletcher before I finished my manuscript Similarly, I thank Fletcher’s current dean, James Stavridis, and academic dean, Ian Johnstone My other colleagues at Fletcher—particularly Kelly Sims Gallagher, Nancy Hite, Zeynep Bulutgil, Jenny Aker, Jeswald Salacuse, Joel Trachtman, and Michael Klein—made working on this project more bearable My staff assistants, Karen Mollung and Paulette Folkins, made the trains run on time My research assistants at Fletcher—Dahlia Shaham, Maggie Riden, and Rebecca Perlman—were also extremely helpful in chasing down answers to some of the more abstruse questions I asked them Estefania Marchan and Aaron Melaas did outstanding jobs of poring over the manuscript with fresh pairs of eyes, offering valuable perspectives and some last-minute research assistance Martin Weiss at the Congressional Research Service and Amare Bekele at UNCTAD provided enlightenment when it was needed on some very obscure questions involving IMF quotas and bilateral investment treaties During my sabbatical year, Beth Simmons was kind enough to lend me an office at Harvard University’s Weatherhead Center for International Affairs Thanks to her, Jeffry Frieden, Bob Ross, Prerna Singh, and Dustin Tingley for making me feel at home there As I’ve wrestled with these issues, I’ve been the beneficiary of a rolling conversation with international political economy and international relations scholars across an array of venues— coffee breaks, small conferences, large meetings, and invited talks I thank Kate McNamara, Walter Mattli, Duncan Snidal, Henry Farrell, Layna Mosley, Christina Davis, Mark Blyth, Courtney Fung, Bruce Jones, Abe Newman, Leslie Johns, Miles Kahler, Jonathan Kirshner, Michael Mastanduno, Manjari Chatterjee Miller, G John Ikenberry, A Iain Johnston, Carla Norrlof, Zhu Feng, Robert Ross, Pan Rui, David Victor, Steven Bernstein, Brad Glosserman, Peter Gourevitch, Todd Hall, Alan Alexandroff, James Lindsay, John Mueller, Matthias Matthijs, Eric Rauchway, Kevin Gallagher, Kevin H O’Rourke, Randall Schweller, David Andrew Singer, Alexander Thompson, Tom Wright, and Charli Carpenter for their thoughts and feedback Portions of this book were presented at the School of Advanced International Studies at Johns Hopkins University, CSIS Pacific Forum, University of Toronto, Nuffield College, The Ohio State University, Boston College, Chicago Council on Global Affairs, and Council on Foreign Relations I thank the attendees at these talks for their hospitality and their critical feedback—not necessarily in that order A much earlier version of chapter appeared as a working paper in the Council on Foreign Relations’ International Institutions and Global Governance series, and a still earlier but revised version appeared in the January 2014 issue of World Politics At CFR, I thank Stewart Patrick, who provided invaluable feedback, and Trish Dorff, who was indispensable in getting the paper published I am grateful to Ilene Cohen and the four anonymous referees of the paper at World Politics The two anonymous referees for Oxford University Press also provided invaluable feedback at light speed Thank you, whoever you are I’ve also been the beneficiary of an ongoing online conversation about these topics in the blogosphere and on Twitter Even though I have not actually met many of my online interlocutors, their links, feedback, and snark benefited me tremendously during the drafting of this book So thanks to Heidi Moore, Joe Weisenthal, Noah Smith, Justin Wolfers, Greg Ip, Jay Ulfelder, Ezra Klein, James Pethokoukis, Zack Beauchamp, Gady Epstein, Tony Fratto, Pascal-Emmanuel Gobry, and Will Winecoff Finally, I am very, very, very grateful to my family This book took its toll on Erika, Sam, Lauren, and our dog Mimi As the months passed and deadlines loomed, I spent more time locked away with piles of paper and less time engaging with my loved ones They never complained or rebelled The thesis of this book might very well be proven wrong in the coming years But, after unintentionally stress testing my wife and kids, I am pretty secure in the knowledge that my family system works really well Daniel W Drezner Newton, Massachusetts February 2014 European Journal of International Relations 9, no 2: 249–75 Steil, Benn 2010 “Debt and Systemic Risk: The Contribution of Fiscal and Monetary Policy.” Cato Journal 30, no 2: 391–96 Stein, Arthur 1984 “The Hegemon’s Dilemma: Great Britain, the United States, and the International Economic Order.” International Organization 38, no 2: 355–86 Steinfeld, Edward 2010 Playing Our Game: Why China’s Rise Doesn’t 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China: From Membership to Responsibility?” Remarks to the National Committee on U.S.-China Relations, New York City, September 21 http://20012009.state.gov/s/d/former/zoellick/rem/53682.htm Accessed July 3, 2013 INDEX Acharya, Amitav, 129 Alesina, Alberto, 167–70, 172 Altman, Roger, 13 American International Group (AIG), 134 Angell, Norman, 191 Apple (corporation), 81 Arab League, 136 Ardagna, Silvia, 167–70, 172 Asian Bond Markets Initiative, 155, 188 Asian Financial Crisis, 4, 65, 68, 144 asset bubble, 8, 45, 59, 65, 70, 84–85, 108, 153, 169, 185 see also subprime mortgages Association of Southeast Asian Nations (ASEAN), 44, 139, 156, 187 A.T Kearney, 126, 128 austerity, 17, 29, 36, 48, 72–73, 127, 143, 155, 163, 167–75, 185–87 autarky, 77, 79 authoritarianism, 146, 157–58 Babb, Sarah, 152 Bair, Sheila, 90, 94, 97 Baker, Andrew, 84 Bank of International Settlements (BIS), 2, 22, 43, 55, 98, 174 Barma, Naazneen, 12 Basel Committee on Banking Supervision (BCBS), 8, 20, 26, 49, 69, 85, 87–99, 101, 133, 180 Basel I agreement, 83, 90 Basel II agreement, 8, 46, 83, 85–86, 88, 90–92, 94–95 Basel III agreement, 23, 46, 79, 85–87, 90–101, 134, 142, 180–81 Bayesian theory, 153 Beattie, Alan, 11, 42 Beckley, Michael, 189 Bhagwati, Jagdish, 188 bicycle theory, 42 bilateral investment treaty (BIT), 17, 53–54, 161 Bipartisan Policy Center, 71 Bloomberg Global Poll, 61–62 Blyth, Mark, 153, 170–71 BNP Paribas, 9, 90 Brazil, 8–9, 44, 49, 59, 62, 101, 108, 111, 115–18, 120–25, 130–31, 149, 169, 183, 186 Bremmer, Ian, 11, 17 BRICS, 9, 18, 50, 105–06, 108, 112, 114, 116–18, 128–29, 131–32, 138, 149–51, 156, 183–85 Bretton Woods, 4, 16–17, 19, 60, 63–64, 107, 188 Brookings Institution, 133 Brown, Gordon, 145, 166 Brubaker, Rogers, 37 business cycle, 31, 66, 119, 163, 165 Cameron, David, 170 Canada, 42, 84, 95, 135, 149, 169, 186 Carnegie Endowment for International Peace, 42, 60 capital account liberalization, 51, 79, 83–84, 101, 143, 152 capital controls, 40, 51, 59, 82, 101, 152 capital reserve requirements, 46, 83, 88–91, 99, 101 see also deleveraging carry trade, 35, 80, 82 central banks, 9, 38, 42–43, 59, 61–62, 91, 134, 138, 174, 179, 185 Chiang Mai Initiative, 155, 188 China (People’s Republic of) 2008 Beijing Olympics, 145 Beijing Consensus, 13, 19, 143, 145–47, 154–58, 163, 182 China 2030 Project, 160–62, 174 China model, 159, 174 Chinese Investment Corporation (CIC), 136 Chongqing Model, 159 Communist Party, 145, 156, 159, 161–62 Development Bank (CDB), 105 foreign currency reserve holdings, 109, 123–24, 130–31 Forum on China-Africa Cooperation, 155 Ministry of Foreign Affairs, 156 People’s Bank of, 48, 135, 138 renminbi, 8, 48–49, 122, 134–35, 137, 139 South China Sea, 36, 156 sovereign debt rating, 128 State Council, 160 WTO membership, 29, 42, 52, 137–38, 144, 155, 160–61, 182 Chinn, Menzie, climate change, 15, 27, 30, 58, 180, 188 2009 Copenhagen summit, 30, 58 Cold War, 37, 53, 71, 126, 132 Committee of the Global Financial System, 49 constructivism, 22, 26 cooperation, 4, 9–13, 15, 17, 22, 24–25, 27, 47, 74, 78, 88, 100, 106, 108, 134–35, 187 Coordinating Committee for Multilateral Export Controls (CoCom), 64 Council on Foreign Relations (CFR), 169, 173 countercyclical spending, 39, 42, 44, 46, 89–90 credit crunch, 86, 177 Crook, Clive, 186 Crouch, Colin, 152 currency swap, 42–44, 133–34 volatility, 42, 43, 59–62, 78, 179 war, 29, 59–62, 75, 179 cybercrime, 58 Cyprus, 133, 189 Dadush, Uri, 42, 60, 74 Dahl, Robert, 113 Darling, Alistair, 165 Debt ceiling, 13, 71–72, 98, 125 debt-to-GDP ratio, 70, 168 Deepwater Horizon, 94 deleveraging, 73, 92, 98, 101, 125, 127 deficit spending, 64, 125, 164–73, 177 deregulation, 78, 83, 143, 153 derivatives, 84 Detert, Neal, 81 Deutsche Bank, 90, 99 Dodd-Frank, 91, 134 Doha Round, 8, 12, 15, 28–29, 39, 42, 51–52, 58, 108, 133, 144, 180, 186 double-dip recession, 29, 73, 170, 185 East Asia Summit, 188, 190 economic growth, 15, 24, 32, 34, 36, 45, 58, 68–72, 75, 91, 93, 116, 125, 155, 157–58, 160–61, 167–68, 172, 181, 187–88, 191 economic sanctions, 103–04, 119, 134 Economist, The (newspaper), 34–35, 39, 49, 59, 61, 68, 90, 101 Edelman Trust Barometer, 69–70 efficient-market hypothesis, 143, 153 see also deregulation; liberalization Eichengreen, Barry, 2–3, 31–34, 62, 65 Eidelman, Vera, 60, 74 El-Erian, Mohammed, 61 European Union (EU) European Central Bank (ECB), 72–73, 94, 123, 127–28, 134, 165, 167, 169–70, 173 European Commission, 30, 128, 168, 173 European Council, 128 euro (currency), 44, 65, 73, 122, 127 eurozone, 29, 42, 48, 61, 66, 70, 72–73, 75, 98–99, 118, 123–24, 127–28, 130, 151, 165, 167, 173, 185, 189 Exchange Rate Mechanism, 17 Growth and Stability Pact, 65, 165 Farrell, Henry, 83 Fannie Mae, Federal Deposit Insurance Corporation (FDIC), 90 Fédération Internationale de Football Association (FIFA), 5–6 Feldstein, Martin, 164 Ferchen, Matt, 158 Ferguson, Niall, 13, 168 Financial Action Task Force on Money Laundering, 49 financial regulation, 8, 17, 45, 58, 69, 79, 83–88, 90–97, 99–101, 113, 134, 143, 145, 182 Financial Services Forum, 94 Financial Stability Board (FSB), 46, 49, 86, 94, 133, 180 Financial Stability Forum, see Financial Stability Board Financial Times (newspaper), 11, 13, 42–43, 59, 62, 97–98, 123, 163, 165, 169 fiscal cliff, 71, 170 Foreign Affairs (magazine), 168 foreign direct investment (FDI), 2, 36, 38, 45, 114, 117–18, 120, 122, 126, 128, 130–31, 158, 161, 179, 189 foreign currency reserves, 104, 109, 122–24, 130–31, 138, 140 France, 9, 14, 50, 91, 95, 107, 110–11, 135, 148–49, 169, 172–73 Freddie Mac, free trade agreements, 17, 27, 52, 137, 139, 188, 190 open regionalism, 52, 190 spaghetti bowl, 188 Frieden, Jeffry, 4, 12 Friedman, Thomas, 13, 146 Fukushima, 70 Fukuyama, Francis, 144, 146, 191 Gallup, 72, 144, 151 Garrett, Geoffrey, 47 Gates, Bill, 61 Geithner, Timothy, 48, 86, 133 see also US Treasury Department General Agreement on Tariffs and Trade (GATT), see WTO Germany, 9, 45, 59, 64, 73, 81, 95, 107, 110–11, 116, 126–27, 142, 148–49, 165–70, 172–73, 185 Bundesbank, 61, 173 Gilpin, Robert, 113 global reserve currency, 121–22, 127, 185 global political economy, 10, 15, 21–22, 30, 56, 63, 68–70, 74–75, 79–80, 83–84, 105–06, 108, 113, 123, 128, 136, 155, 181, 183–84, 186 Global Trade Alert, 39, 41, 52 gold standard, 60, 63, 65, 107, 140, 154, 187 Goldman Sachs, 62, 88, 94, 105, 149, 184 Goldstein, Judith, 153 Gourevitch, Peter, 104–05 governance reform, 11, 17, 31, 78, 96, 133, 149–150 Great Depression, 1, 4, 12, 23, 31–34, 38, 41, 43, 66, 140, 153, 175, 178, 183, 186 1929 stock market crash, 2–4, 12, 14, 32–34, 54, 178–79 1933 London Conference, 12, 178 Great Moderation, 163–64 great power politics, 9, 15–18, 20, 22–23, 29–30, 36, 44, 47–48, 54, 56, 74–75, 78–79, 105–108, 117, 123–24, 126, 129–132, 134, 138, 140–41, 144–45, 162, 179–180, 182–83, 185, 187, 190 Greece, 29, 72–73, 127, 167 Group of Seven (G7), 8, 26, 43, 47, 49, 60–61, 64–65, 108, 112, 150, 169 Group of Eight (G8), 47, 180 Group of Twenty (G20), 2, 12, 15, 17–18, 22, 25, 28–29, 34, 39–41, 44–49, 52, 55–56, 58–59, 61–63, 85, 87–88, 91–92, 95, 100, 109, 131, 133–35, 137–138, 142, 145, 147–48, 150–51, 155, 164, 166, 169, 179, 180 2008 Washington summit, 25, 87 2009 Pittsburgh summit, 47, 88, 148 2009 London summit, 48, 145 2010 Toronto summit, 17, 29, 45, 48, 133, 139, 169 2010 Seoul summit, 46, 91 2012 Los Cabos summit, 48 Framework for Strong, Sustainable, and Balanced Growth, 48, 147 Gutner, Tamar, 30 Haass, Richard, 13, 173 Hale, Tom, 12 Halper, Steven, 146, 157 hedge fund, 83–84 hegemon, 5, 63, 66, 76, 105–09, 121, 123, 126, 131, 133–34, 147, 164 coalition, 107–08, 129, 132, 139–40, 183 stability theory, 12, 106 Held, David, 12 Heritage Foundation, 35, 39–40, 151 Hildebrand, Philipp, 62 Hirschman, Albert, 78 Hobbes, Thomas, 188 Iceland, 44, 82 Ikenberry, John, 56, 79, 184 India, 6–9, 49, 53, 62, 108, 111, 115–18, 120–25, 130–32, 149, 183, 186 Indyk, Martin, 11 inequality, 37, 157, 160, 188 Institute for Economics and Peace, 37 Institute for International Finance (IIF), 90–94, 99 institutionalism, 17, 25, 83–84, 87, 107 Inter-American Development Bank, 124, 190 interdependence, 23, 79, 82 interest rates, 42–43, 59, 61–62, 65, 73, 82, 91, 134, 161, 169–70, 179 International Atomic Energy Agency (IAEA), 103 International Chamber of Commerce, 94 International Energy Agency (IEA), 7, 190 International Labor Organization (ILO), International Monetary Fund (IMF), 1–2, 5, 7–8, 12, 22, 26, 32, 44–45, 49–51, 53, 55–56, 59, 63–64, 72–73, 84, 98, 101, 108–09, 115, 117, 119, 127, 133–36, 138–39, 142, 155–56, 164, 166, 168, 172, 174, 179–80, 182 quota reform, 50, 73, 133–34, 138, 180 International Olympic Committee (IOC), International Organization of Securities Commissions (IOSCO), 46 interwar period, 12, 78, 107, 140 Iran, 46, 103–04, 119, 134 Italy, 73, 111, 126–27, 148, 151, 172–73 Jacques, Martin, 146, 157 Japan, 44, 61, 64–65, 68, 70, 73–75, 81, 91, 93, 95, 107, 109–11, 114–24, 129–30, 132, 148–49, 156, 182, 186, 188 Jentleson, Bruce, 14 Johnson, Simon, 84, 87, 97 Johnston, Iain, 139 Jones, Bruce, 133 J.P Morgan (bank), 60–61, 90, 94, 96 Kagan, Robert, 11, 189 Kahler, Miles, 49, 152, 156 Kennedy, John F., 177 Kennedy, Scott, 158 Keohane, Robert, 25, 153, 183 Keynes, John Maynard, Kindleberger, Charles, 12, 20, 38–39, 44, 66, 106, 179, 183 Kissinger, Henry, Knightian uncertainty, 153 Krasner, Stephen, 25, 107 Krauthammer, Charles, 173 Krugman, Paul, 38, 168, 171 Kupchan, Charles, 13 Kwak, James, 87 Lake, David, 80 Layne, Christopher, 13, 123 Legatum Prosperity Index, 34, 112, 125 Lehman Brothers, 10, 17, 21–22, 52, 82, 86, 90, 100, 108, 183 Leonard, Mark, 11 leverage, 8, 35, 87–89, 101 Li Keqiang, 159–161, 163 liberalism (ideology), 14, 19, 22 liberalization free markets, 145, 147–48, 150–51, 162, 175 free trade, 39, 107, 144, 147, 149–51, 160, 175 laissez-faire policies, 19–20, 150, 175 Lindsey, Lawrence, 164 liquidity, 38, 65, 89, 92, 97, 179 crisis, 42, 44, 54, 72, 86, 89, 134, 177–79 requirements, 86, 88–90, 92, 95–99, 101 Lucas, Robert, 164 macroeconomic imbalances, 8, 12, 47, 49, 133–35, 137, 169, 182, 185 Mahbubani, Kishore, 9, 69 Malloch-Brown, Mark, 11 Marshall Plan, 64 Mastanduno, Michael, 13 Mankiw, N Gregory, 164 Mann, Thomas, 72 Martin, Lisa, 25 Mazower, Mark, 12 McKinsey Global Institute, 2, 35, 137 McNally, Christopher, 138 Mearsheimer, John, 184 Merkel, Angela, 165–66, 173 Mexico, 8, 44, 108, 110–12, 148–49 mortgage-backed securities, 9, 89, 97, 176 Naím, Moisés, 14 Nathan, Andrew, 146 National Bureau of Economic Research (NBER), 167 neoliberalism, 140, 143, 145–46, 151–53, 155, 158–59, 162–64, 174, 183, 185–86 see also Washington Consensus New International Economic Order, 19, 152 New York Times, 97, 99, 145, 161 North American Free Trade Agreement (NAFTA), 144 Newman, Abraham, 83 Nye, Joseph, 113 Obama, Barack, 71, 133, 135, 144, 169 oil, 6–7, 17, 94, 103–04, 146, 190 open economy politics (OEP), 22, 80, 82, 84, 87, 181, 184 Organization for Economic Co-operation and Development (OECD), 7, 45, 52, 68–69, 81–82, 105, 117, 119, 121, 125, 128, 167–68, 180, 185 Organization of Petroleum Exporting Countries (OPEC), 64, 108 Ornstein, Norman, 72 O’Rourke, Kevin, 2–3, 31–34 Pakistan, 44, 110–11, 138, 148–49 Patrick, Stewart, 11 Paulson, Henry, 9–10, 88, 176 see also US Treasury Department Peterson Institute for International Economics (PIIE), 137 Pettis, Michael, 12 Pew Global Attitudes Survey, 109, 112, 147, 172 piracy, 17, 36–37, 46–47, 132–33, 136–37, 139, 180, 182 polarity, 14, 188 policy coordination, 2, 4, 7, 10, 15, 17, 24–28, 31, 42–45, 47, 49, 54, 57, 64–66, 75, 78, 90, 95, 100, 107, 113, 127, 133–37, 155, 175, 178–79, 190 political voice, 78 power constraints on, 5, 13, 27, 80, 85, 113, 127–29, 133, 137–38, 160, 169–70, diffusion of, 13–14, 105, 107–08, 113, 140 distribution of, 12, 16, 18, 30, 50, 54, 57, 66, 76, 105–09, 112, 116, 118, 120–21, 123–24, 130, 132, 139–41, 180–81, 184, 186, 189, 191 soft, 113, 185 spoiler, 13, 19, 23, 106–07, 132, 136, 139, 141, 155, 184 supporter, 19, 23, 51, 106–07, 132, 136–37, 139–40, 142, 155, 182 privatization, 143 procyclical lending, 35, 38, 46, 85, 89–90 protectionism, 4, 20, 37–38, 43, 54, 82, 85, 100, 144–45, 148, 152, investment, 45, 136, 161, 178 trade, 17, 28, 39–42, 52–53, 56, 64, 77, 79, 85, 100, 137–38, 147, 150, 153, 178–79 public goods, 12–15, 39, 44, 57, 74, 77, 106–07, 178, 183 quantitative easing, 43, 59, 61–62, 125, 134, 154, 164–65, 173–74, 179, 185 Quiggin, John, 152 Ramo, Joshua Cooper, 157 ratings agencies, 71, 98, 114, 124–25, 127–28 Ratner, Ely, 12 realism (ideology), 14, 22 Red Cross, 172 regulatory capture, 84, 87, 91–92, 94, 97, 99 remittances, 34, 36, 38, 179, 189 Reinhart, Carmen, 38, 167–70, 172–73 revisionism, 13, 24, 107, 136, 138–39, 145, 182 Rey, Hélène, 119 Rodrik, Dani, 12, 16, 51, 101–02 Rogoff, Kenneth, 38, 164, 167–70, 172–73 Samans, Richard, 11 Santiago Principles, 45, 135–36 Scarborough, Joe, 173 Schwab, Klaus, 11 Schweller, Randall, 14, 149 Scobell, Andrew, 146 Scowcroft, Brent, 63 Securities and Exchange Commission (SEC), 66, 83 sequestration, 71–72, 170, 173 Shambaugh, David, 156 Sharma, Ruchir, 184 Simpson-Bowles Commission on Fiscal Responsibility and Reform, 168 Singapore, 44, 135 Skidelsky, Robert, 171 Smith, Ben, 177 Society for Worldwide Interbank Financial Telecommunication (SWIFT), 103 Soros, George, 186 South Africa, 108, 110–11, 149 South Korea, 44, 49, 59, 81, 103, 110, 117, 135, 148–49, 156, 188 sovereign debt crisis, 29, 44, 61, 72–73, 98, 127, 155, 167–68, 170, 174, 179 sovereign wealth funds, 45, 135–36, 144, 146, 180 Spain, 29, 73, 110–11, 148–49, 151, 172–73 stagflation, 78 Standard & Poor, 71, 84, 125–26, 176 Starrs, Sean, 120–21 state capacity, 113, 128–31 state capitalism, 13, 146 state-owned enterprises, 45, 145, 155, 157–58, 161–62 Steinbrück, Peer, 9, 165–66 Stiglitz, Joseph, 38 stimulus fiscal, 28–29, 42, 45, 70, 73, 133–34, 142, 146, 155, 161, 163–66, 169–70, 172–73, 179 monetary, 28–29, 45, 62, 70, 73, 155, 164 (see also quantitative easing) Stockholm International Peace Research Institute (SIPRI), 123 Stokes, Doug, 122 Strange, Susan, 113 subprime mortgages, 2, 7–9, 45, 53, 70, 85, 99, 108, 144, 153 Subramanian, Arvind, 69, 186, 189–90 Summers, Lawrence, 164 supply chain, 80–82, 84–85, 100, 181 Swiss Economic Institute (KOF), 34–35, 39, 85 Switzerland, 42–43, 95 Taiwan, 59, 81, 188 Themnér, Lotta, 37 Thompson, Alexander, 30 Tier I capital, 88–89, 91–92, 99 too big to fail, 20, 58 Transatlantic Trade and Investment Partnership, 52, 187 Trans-Pacific Partnership, 52, 187, 190 Troubled Assets Relief Program (TARP), 134, 176–78, 186 Triffin dilemma, 64 unemployment, 2, 29, 37–38, 67–68, 72, 91, 172–73, 177 United Arab Emirates, 135 United Kingdom (UK); also Great Britain, 10, 12, 42, 82, 95–99, 107, 118, 140, 145, 166, 170–71 Bank of England, 173 Financial Services Authority (FSA), 10 United Nations (UN), 4–5, 12, 26, 68 Millennium Development Goals (MDG), 34 Conference on Trade and Development (UNCTAD), 36 Development Program (UNDP), 34 Environmental Program (UNEP), 26 Security Council (UNSC), 46, 103, 139 United States of America Congress, 13, 48, 50, 70–72, 83, 134, 144–45, 170, 173, 176–77 Congressional Budget Office (CBO), 172 dollar, 8, 48, 59, 64–65, 70, 108–09, 114, 121–22, 125, 127, 134, 137–38, 142, 145, 147, 182 Federal Reserve, 10, 59, 62, 66, 71, 119, 125, 133–34, 145, 164, 176–78, 185 National Intelligence Council, 22, 109 trade deficit, 65, 81, 171 Treasury Department, 9–10, 48, 86, 88, 124, 135, 176 v-shaped recovery, 38 value added, 81–82, 119–21, 130–31, 146, 157 Wall Street Journal, 86, 92, 136 Wallensteen, Peter, 37 Wang Jisi, 112, 146 Washington Consensus, 13, 18–19, 140, 143–47, 150, 152, 154–58, 163, 171, 174–75, 182–83 Weber, Steven, 12 Wells Fargo, 90 Wen Jiabao, 159, 162 Wilf, Meredith, 92 WikiLeaks, 13, 105 World Bank, 5, 12, 34, 44, 49–51, 55, 63, 84, 116, 124, 128, 138, 142, 150, 156, 160, 179–80 World Economic Forum (WEF), 11, 125, 128 World Trade Organization (WTO), 2, 7, 12, 18, 22, 26, 28, 29, 39–42, 49, 51–53, 55–56, 64, 69, 81, 85, 117, 119–20, 137–38, 141, 144, 155, 160–61, 179–80, 182, 186–87 antidumping, 39–40, 64 countervailing duty, 40, 64 Government Procurement Agreement (GPA), 42, 161 see also Doha Round Xi Jinping, 160 Xiaoyu Pu, 159 Young, Kevin, 12, 94, 96 Yuqing Xing, 81 Zaring, David, 12 Zedillo, Ernesto, 12 .. .THE SYSTEM WORKED THE SYSTEM WORKED HOW THE WORLD STOPPED ANOTHER GREAT DEPRESSION DANIEL W DREZNER Oxford University Press is a department of the University of Oxford It furthers the University’s... any other form and you must impose this same condition on any acquirer Library of Congress Cataloging-in-Publication Data Drezner, Daniel W The system worked : how the world stopped another great. .. THE PROBLEM The 2008 financial crisis posed the greatest threat to the global economy since the Great Depression of the 1930s.1 During the first twelve months of what is now commonly called the