The theory of hegemonic stability was arguably IPE’s most important contribution to Cold War international relations theory. A hegemon is a powerful state that supplies public goods to the international system. These public goods include stable money, security (such as freedom of the seas), and a system of free trade that can be shared by all. Providing these public goods is costly, but the hegemon gains even if it disproportionately bears the expense alone. If the world system prospers, the hegemon necessarily prospers as well. In fact, this provision of public goods may be a strategy to secure or extend the hegemon’s dominant position.
The theory of hegemonic stability holds that the world system is most prosperous when a hegemon exists to organize the international political and economic system and coordinate the provision of international public goods. Periods of Dutch (1620-72), British (1815-73), and U.S. (post-1945) hegemony are commonly cited as evidence of this link between hegemony and prosperity. When hegemony breaks down, however, the international system falls into disorder and conflict, with the resulting decline in peace and prosperity. One can think of the theory of hegemonic stability as a theory of U.S. Cold War economic statecraft, with the Bretton Woods system and the Marshall Plan its clearest manifestations.
Some scholars argue that hegemony is a self-defeating and therefore temporary condition. While the hegemonic state bears the burdens of organizing the international system and supplying public goods, free-rider states prosper and increase the burdens on the hegemon. At some point the hegemon finds itself over-committed and unable to bear the costs of the system it has created. Either it begins to put domestic interests over its international obligations or it becomes too weak to honors its widespread commitments. Britain’s decline in the late 19th century and early 20th century is an example of this dynamic. The Iron Curtain’s fall in 1989 can also be seen as the implosion of Soviet hegemony over Central and Eastern Europe.
Hegemony is a state-centered concept that includes security as a critical element, but that draws upon the analysis of international trade and international finance to provide a richer and more complex explanation of the rise and fall of great powers. One important question in IPE today is whether China will challenge U.S. hegemony and threaten the liberal international order. Another is whether Germany will move to establish itself as a hegemon within the European Union.