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Interdependence, I n s t i t u t i o n s ,andthe Balance o f Power I pauz A.~apayoanou Britain, Germany, and I World*WarI I I Economic ties were more extensiveand significant in the period before 1914 than at any time before or since, and the chief protagonists of the period, Britain and Germany, were one another’s best customers.Yet Britain and Germany pursued much different foreign policies; Germany pursued an aggressive, expansionist foreign policy and Britain responded with an ambivalent ”straddle policy” toward Germany that was a mix of balancing and conciliation. Many argue that such disparate behavior and the outbreak of World War I falsify the view held by many liberal theorists of international relationsthat high levels of economicinterdependence are conduciveto peace; realist criticsalso suggest that this affirmstheir position that the requisites of high politics dominate in international politics.’ While the First World War clearly contravenes the liberal view, I argue that the realists are also wrong. Economic interdependence had a profound effect on British and German strategies in balance-of-power politics in the period leading up to August 1914, but the two pursued much different foreign policies because of Paul A. Papayoanou is Assistant Professor of Political Science at the University of California, Sun Diego, and he completed a draft of this article while a Faculty Fellow of the University of California Institute on Global Conflict and Cooperation during the 1994-95 academic year. I thank Jack Hirshleifer,Piper Hodson-Pierson, Barbara Morris, Richard Rosecrance, Lars Skllnes, Arthur Stein, and anonymous reviewers for their valuable comments; Risa Brooks, David DLugo, Robert Pahre, Philip Roeder, Ronald Rogowski, and participants at a seminar of the Princeton University Research Program in International Security for very helpful discussions; and Amy Cressey and Hung Tran for research assistance. I also gratefully acknowledge the Committee on Research of the UCSD Academic Senate for funding archival research in Britain, and the Institute on Global Conflict and Cooperation for generous financialsupport. I assume full responsibility for all errors and shortcomings. 1. For the liberal view, see for example, Richard Rosecrance, The Rise of the Trading State: Commerce and Conquest in the Modern World (New York Basic Books, 1986);but see also Robert Jervis, ”The Future of World Politics: Will It Resemble the Past?” Znternational Security, Vol. 16, No. 3 (Winter 1991/92), pp. 39-73; and Stephen Van Evera, ”Primed for Peace: Europe After the Cold War,” International Security, Vol. 15, No. 3 (Winter 1990/91), pp. 7-57. For the realist view, see esp. John J. Mearsheimer,“Back to the Future: Instability in Europe After the Cold War,” International Security, Vol. 15, No. 1 (Summer 1990), pp. 5-56; and Kenneth N. Waltz, Theory of International Politics (Reading, Mass.: Addison-Wesley,1979), chapter 7. International Security, Vol. 20, No. 4 (Spring 1996), pp. 42-76 0 1996 by the President and Fellows of Harvard College and the MassachusettsInstitute of Technology 42 Interdependence,Institutions, Balance of Power I 43 the different ways their domestic political institutions aggregated political and economic interests. I first make this argument theoretically,refining and synthesizing liberal and realist perspectives to explain great-power strategies since the late nineteenth century.’ The nature of economic ties, I argue, is a critical determinant of whether societal economic interests will support or oppose a state’s security goals and policies. However, domestic political institutions affect whether internationalist or domestic-oriented economic interests are politically salient and able to affect strategic decisions. Thus, economic ties and political institutions determine whether strategists have the capacity to balance against threats they perceive, and whether they might pursue expansionist goals. Moreover, I argue, these domestic mobilization processes affect the expectations that state leaders have about one another’s intentions, and this has a strong effect on the international strategic interaction process between potential allies and adversaries . Thus, by affectingboth the capacitiesof state leaders and others’ expectations , economic ties and political institutions determine the strategies great powers pursue in balance-of-power politics. The next section elucidates my theory, which is then used to explain the behaviors of Britain and Germany, the pivotal actors in European balance-ofpower politics in the period leading...

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