Public goods are characterised by non-rivalry in consumption and non-excludability. A lighthouse is often cited as a paradigmatic example of what a public good is. Fishing vessels out at sea can make use of the lighthouse’s signals to guide them safely to port. The vessels cannot be excluded from consuming the lighthouse signals (non-excludable) and their consumption does not diminish the availability of the signals to others (non-rivalry). So far, so good. But now let’s assume that somebody takes over the lighthouse and takes control of the switches. Though difficult and costly, the public good could then be transformed into a club good or even a private good by switching off the light signals and replacing them with a secure radio frequency that only fee-paying members or individual buyers can access. That would allow the lighthouse operator to transform a public good into a club good (excludable, but non-rivalrous). This example is a little contrived, but it does shine a light on the fact that conceptually and practically the concept of a public good is more problematic than textbook examples suggest.
Few, if any goods are unalterably non-excludable (Snidal 1985). The publicness of a good is often the outcome of a deliberate policy choice. National security, for example, may be a public good from the point of view of a nation’s citizens. National security, by definition, is not a public good from the point of view of another nation’s citizens. To them, it would be a club good. Moreover, by excluding certain parts of a country’s territory from the defence perimetre, national defence stops being a public good from the point of view of the citizens excluded. Similarly, free trade is considered a public good. But just ask China how it feels about its publicness. Similarly, the dollar is widely regarded as a public good. Neither Iran nor North Korea would agree. Both free trade and an international currency may be non-rivalrous in consumption, but, although potentially costly, the provider(s) of the public good can turn effectively into a club good. Few, if any goods are pure public goods. Policy choices can affect the public-ness of a good.
It is also important to distinguish between international and global public goods, for the publicness of a good does not mean that its availability needs to be global. Public goods are typically geographically circumscribed. To the extent that the GATT regime provided a public good (free trade), it was geographically restricted to its members. Again, the publicness of a good frequently depends on the policy choices of those supplying the good. Public goods can usefully be divided into public goods by design (policy decision) and public goods by default (non-decisions). Only public goods that render any attempts at exclusion prohibitively expensive or impossible deserve to be called ‘pure’ public goods. In this sense, most international public goods are not pure public goods.
The logic of collective action suggests that public goods tend to be under-provided (Olson 1965). It also suggests that smaller groups face fewer obstacles in providing public goods than larger groups. Moreover, the “exploitation of the large by the small” implies that the larger members of a group will make relatively greater contributions to the production of a public (or collective) good than the smaller members. Last but not least, it suggests that the good only gets provided, if the larger members (or the largest member) derive a net benefit from its provision. In extremis, if the largest member of a group derives a net benefit from producing a public good, the good will get produced, even if all the group members free ride. In this case, and assuming that the next largest member/ group of members cannot or will not provide replacement or rival public goods, the public goods provider (like any monopolist) can make the good selectively excludable. As indicated above, by restricting the availability of a public good, the provider will incur costs, including the enforcement costs related to the restrictions. In practice, the costs of imposing and enforcing selective restrictions may be prohibitive and/ or translate into a net loss for public goods provider. Nonetheless, being the principal producer of an international public goods allows provider, in principle, to turn a public good into a club good from the perspective of those excluded from its consumption. Under a monopoly, being the principal producer of an international public good therefore also is a source of economic and political power. The more difficult it is for others to produce the public goods themselves, the greater the monopoly producer’s power.
The United States provides, or makes very substantial contributions to the provision of, international public goods. The liberal international economic regime rests on such public goods as peace, economic stability, free(ish) trade, relative monetary and financial stability and freedom of navigation, as well as international public health. As far as the international economic system is concerned, the US provides, or makes a substantial contribution to the provision of, crucial public goods, in particular (1) free trade, (2) broadly cooperative monetary and financial relations, (3) an international currency, (4) secure access to the global commons and (5) technology (diffusion).
How exactly does the US provide international public goods? (1) By ensuring the adherence to free trade principles and norms, (2) by managing international monetary and financial relations, (3) providing an international currency and allowing its non-discriminatory use, (4) by guaranteeing the safety of, and non-discriminatory access to, the high seas (global commons) and (5) by allowing, by and large, technological diffusion (and by setting relevant standards and norms). Post-WWII, the US was uniquely positioned to play the of the public goods provider-in-chief due to the its economic, financial, technological and military superiority vis-à-vis others. This is not to suggest that the US acts altruistically. On the contrary, theory suggests that public goods only get produced if the provider(s) derives a net benefit from it.
As the chief public goods provider, the US incurs both costs and benefits. The net benefits are difficult to calculate, as both costs and benefits include economic, financial, political and security costs and benefits. To what extent an economic cost offsets a security gain is difficult to determine in an objective manner. Leaving costs and benefits aside, providing international public goods has given the US significant power in terms of its ability to include or exclude others from access to US- or largely US-provided international public goods. The economic and financial costs of excluding vary depending on the reduced benefits the provider derives and the costs related to the exclusion measures. This is similar to leveraging ‘asymmetric interdependence’, except that the targeted party’s dependence on a public good is typically far greater than its bilateral reliance on the United States. Critically, providing international public goods also gives the US greater influence, as it allows it to leverage public goods vis-à-vis third-parties depending on them. This is what makes extra-territorial policies and sanctions so effective. It excludes, or threatens to exclude, the targeted party not just from the US market but from all the markets depending on access to US international public goods.
International "economic" public goods – selected costs & benefit
Costs
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Benefits
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Leverage
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Free Trade
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Allow others to catch up (more quickly) through more rapid economic growth
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Increased aggregate welfare
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Market closure; enforce multilateral rules
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Monetary & FX
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Ensure int’l policy coordination
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Benign neglect; policy autonomy (under floating FX regime)
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Exchange-rate weapon
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Currency & Finance
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Overvalued FX rate
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Lower borrowing costs; greater demand for national debt
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Dollar weapon; financial market exclusion (incl. asset freezes)
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Technology
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Others free ride on technological innovation
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Set international standards and rules
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Export controls; licensing of critical technologies
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Freedom of Navigation (Global Commons)
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Costs of maintaining a large navy
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Cannot be excluded from global commons
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Selectively restrict access to/ use of use of high seas (global commons)
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While the consumers of US-provided public goods benefit from network effects and efficiency gains, the absence of an alternative also creates sensitivities and vulnerabilities (Keohane & Nye 1977). The (quasi) monopoly character of public goods makes for greater sensitivity and vulnerability than mere asymmetric interdependence. If trust is high and the provider-in-chief does not abuse its position, there is no problem. If trust declines and the provider abuses its position repeatedly, the incentives to reduce reliance and/ or find or create an alternative to the US-provided public good increases. Mitigating let alone eliminating sensitivity and vulnerability typically involves significant economic and efficiency losses, but it reduces the economic and political risks related to reliance and dependence.
Sino-US relations can be understood in terms of both asymmetric interdependence and the use and abuse of US-provided public goods. China has relied on largely US-provided international public goods since the beginning of its international economic re-integration in the late seventies. China’s increasing integration into the world economy has increased its dependence on them. Not surprisingly, China has felt increasingly uncomfortable about its reliance on US international public goods, and particularly so once the US started to use (or abuse) them vis-à-vis China. In other words, China lives in constant fear that the US might at any point decide to transform a public good into a club good (from China’s point of view). The present US administration has done nothing to alleviate these concerns. This is why “decoupling” has become, if not a desirable, at least a more desirable option for China (Jaeger 2020). The increasing use and abuse of public goods (or the actual or potential threat thereof), China’s increasing ability to create potential alternatives as well as long-standing concerns about international economic stability in view of domestic political legitimacy have created more than enough incentives for China to seek to wean itself off its reliance on US-provided goods.
If the provider of the public good abuses it often, others will increasingly seek to reduce their dependence on the ‘public’ good. It should therefore not be surprising that China has begun not just to reduce its reliance on US-provided public goods, but also to lay the foundation for the provision of Chinese international public goods. Pursuing China-led regional trade agreements (e.g. RCEP), creating bilateral and multilateral international financing modalities (e.g. BRI, AIIB), internationalizing the renminbi (and opening up domestic financial markets) as well as building a blue water navy aim to do exactly that. China’s economic size and financial importance is creating a politically favourable asymmetric interdependence vis-à-vis many other countries. But creating regimes that rely on Chinese-provided and-controlled public goods is even more desirable, as it limits China’s reliance on US-provided goods as well increase China’s own influence vis-à-vis countries making use of them. China even seeks to contest US control of space, another part of the global commons. This suggests the extent to which a Sino-US public goods contest is bound to prove destabilizing. (Incidentally, the US abusing public goods vis-à-vis allies is a terrible mistake policy because it would make China increasingly attractive as an alternative supplier of international public goods.)
An important consequence of Sino-US decoupling and the provision of alternative Chinese international public goods would be a declining asymmetric interdependence - with both asymmetry and interdependence declining and the opportunity of US to leverage public goods reducing. Asymmetry will diminish, interdependence will decline, sensitivity and mutual vulnerability will converge. If Sino-US relations really turn into a “proper” Cold War, then a long-term drift towards quasi-autarkic relations à la US-USSR relations may become unavoidable. Another likely consequence may be that by way of extra-territorial, third-party leveraging of public goods, policies, countries (other than the US and China) will be forced to choose sides. This would be particularly difficult to avoid in case of bipolar Sino-US security competition. At the same time, it would contribute to the emergence of bipolarity.
Sino-US economic relations are characterised by asymmetric interdependence and the United States provides important international public goods from which it can - more or less - exclude China, even if it means incurring substantial costs itself. This fact provides the US with significant leverage. To the extent that the US is using this leverage (or threatens to do so), China will face increasing incentives not only to reduce interdependence and asymmetry, but also to become an international goods producer itself. The latter would reduce the risk of US use and abuse of international public goods in relation to China and it would allow China to benefit from the provision of public goods (provided it finds consumers). Simultaneously, China’s increasing economic, financial and technological prowess creates incentives for the US to use and abuse public goods, in spite of the significant net economic costs of such a policy. With two alternative international public goods emerging, both the US and China will need to attract followers and users of the public goods provided by them. In many (but not all) cases, third countries will need to make a choice and/ or they may be coerced into making a choice by Washington and Beijing about which public good to rely on. If the US continues to leverage the provision of international public goods vis-à-vis China, economic and financial bipolarity will be difficult to avoid.