chapter  1
21 Pages

A political theory of economic statecraft

The literature on economic statecraft suffers from two important limitations. First, despite David Baldwin’s observation that various forms of economic statecraft follow a similar logic and Albert Hirschman’s assertion that economic incentives influence states because of the possibility they create for future economic sanctions, the existing literature treats economic sanctions and economic incentives as analytically distinct.1 Second, much of the literature consists of a rather sterile debate about whether economic sanctions or incentives can achieve important foreign policy objectives, with less attention to the more policy-relevant issue of when and under what conditions economic statecraft can achieve these goals.2 Consequently, the literature has been dominated by the extreme positions occupied by commercial liberals, who assume that economic incentives and economic sanctions succeed when they maximize the economic incentives they present to states, and political realists, who doubt that economic tools of statecraft can ever achieve important political objectives. The smaller literature that does evaluate the conditions for success tends to focus almost exclusively on international political variables and downplays domestic political factors in the target state that can affect its willingness to comply.3 Even the few analysts who privilege domestic variables tend to oversimplify the target state’s domestic political environment, utilizing such crude variables as the regime type of the target state.4 In so doing, they overlook the complexity of the domestic political environment. To remedy these problems, in this chapter we develop our own conditionalist model of economic statecraft, hinging upon the international and domestic political costs that the sender generates for the target government. To this end we develop two key explanatory clusters of variables, one international and one domestic, to capture the political costs and benefits that are likely to accrue to the target government as a result of economic statecraft. Internationally, we argue that target states will pay most attention to the degree of threat to strategic interests (TSI) associated with

accepting or rejecting a sender’s demands. TSI is a function of the extent to which compliance/non-compliance would endanger vital national interests (i.e., the target state’s sovereignty or national independence), hinder the target’s efforts to protect its national security, or risk compound political or military sanctions, as well as the ability of the target to counter such pressures with third-party support. Our key domestic political variable is target state stateness, comprised of the target government’s autonomy, capacity, and legitimacy, which determine the likely domestic political consequences of defying the sender. With these variables, we develop a comprehensive model of economic statecraft, together with hypotheses that flow from this model that can be tested against the leading commercial liberal, political realist, and conditionalist alternatives in the balance of the book. We begin this chapter with a critical discussion of existing approaches to economic statecraft. Next, we detail the assumptions about leader motivations that underlie our model and explain what they mean for policymakers who confront economic sanctions and inducements. Based on these assumptions, we present our political theory of economic statecraft, with detailed discussions of our central variables: TSI and stateness. We then present our full model of target state decision making in the face of economic statecraft and overview our plans to test hypotheses drawn from it against other leading approaches in subsequent chapters of this book.