THE STERLING AREA REVISITED: THE POLITICAL ECONOMY OF INTERNATIONAL ECONOMIC DISINTEGRATION

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The Brexit process and election of Donald Trump call forth pressing questions about the future global financial and trade relationships. What political and economic mechanisms support international economic orders, and the hollowing out of such orders? Who wins and who loses when international regimes breakdown?Historical parallels are commonly drawn between the current popular backlash against globalisation and the international politics and economics of the 1930s. However, the disintegration of the Sterling Area after 1945, a long-forgotten historical remnant of British economic imperialism, may be more instructive as the world faces the prospect of American economic decline and a fraying EU economic regime.The Sterling Area, a group of countries bound to Britain through the deep historical, political and economic ties, remained after WWII, "the largest multilateral trading system in the world" (Shannon 1949). But the system was slowly declining even then and definitively came apart in the 1970s. This study is the first to quantitatively survey the dissolution of the economic bloc as it played out in Britain and across member countries. This history can help us to recognize and better understand the dynamics of international economic disintegration and realignment.In the early post-war period, Sterling Area participants vigorously debated their relative burdens as well as the benefits of ongoing membership (e.g. Conan 1952; Day 1954). But later observers focused on the system's effects on the British domestic economy and on the international monetary order at large (e.g. Cohen 1971, Schenk 2010). The mounting burdens on the bloc's individual participants that drove them to leave the system have been neglected. Moreover, there has never been a systematic study of how discriminatory international trade policies and economic patterns evolved in this transitional era. We need to understand how the choices of states affected international monetary and trading outcomes, if they are to help us navigate today's dynamics of dissolution and realignment.And choices there were. While particulars differed, most countries enjoyed some autonomy in making trade and exchange-rate policies. Further, most industries could decide between adapting to the shifting global economic environment or else defending their Sterling Area markets. The key political and economic choices were structured through a loosely coupled set of specific interacting regimes, including the Sterling Area, US-dollar area, European Payments Union, a network of bilateral agreements, and multilateral arrangements under the General Agreement on Tariffs and Trade (GATT) and Bretton Woods institutions.In this fragmented world economy that mirrors today's, countries evaluated trade-offs between the benefits of the Sterling Area discrimination and those of liberalisation, including closer economic ties with America and Europe. With new data and mixed method techniques, we can evaluate why states made the choices they did in this context and consider the implications for economic performance and outcomes.The breakdown of the Sterling Area has been studied before (e.g. Schenk 1994; Strange 1971). But our re-evaluation takes seriously variables that have been ignored in the past, such as the international political and institutional factors that structured state behaviour, market performance within the system and connections with other parts of the world economy. We will also tackle a uniquely comprehensive range of influences, considering the impact of the system on member exit decisions, British trade performance, and the adaptive strategies pursued by policymakers.More complete research is useful to those grappling with today's international realignments. By focusing on the right data, we hope to show that the post-WWII world economy can shed light on issues such as the decline of the US dollar, Brexit, and mounting protectionism in global trade.