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The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets. By David E. Spiro. Ithaca, N.Y.: Cornell University Press, 1999. xiv + 177 pp. Figures, bibliography, index. Cloth, $29.95. ISBN 0-801-42884-X.
Reviewed by Michael R. Adamson
This study, an account of the petrodollar recycling of the 1970s, makes a significant contribution to the literature of international political economy (IPE). The book also is a useful point of departure for further exploration by historians of finance, economics, and business. The data on capital flows alone constitute a valuable resource for all analysts.
Spiro's data clarify the workings of petrodollar recycling. The focus of much of the literature heretofore has been on the role of private banks, which conventional wisdom holds, according to Spiro, accepted the deposits of Arab oil producers and lent them to the oil-consuming nations that needed financing. That is, capital markets provided the mechanism of balance-of-payments adjustment. Spiro challenges this story. A significant share of the surplus produced by Organization of Petroleum Exporting Countries' (OPEC) was lent directly to the governments of the largest industrialized economies. No more than a third constituted conventional deposits with commercial banks. The biggest economies thus acquired the funds to finance their current account deficits without the mediation of private financial institutions. For their part, commercial banks lent to their most creditworthy customers, including newly industrializing countries and a few less developed economies. Spiro argues that the flow of OPEC capital into government securities and commercial bank accounts "did nothing to alleviate current account deficits caused by oil prices" (p. 74). Rather, official capital (foreign aid, International Monetary' Fund [IMF] credits) was the means by which surplus nations (OPEC and the "Big Five" of the Organization for Economic Cooperation and Development [OECD]) channeled capital to those with deficits. Quite simply, "petrodollars were not recycled by any agent" (p. 139).
At the theoretical level, which is Spiro's primary concern, The Hidden Hand seeks to reconcile realist and liberal approaches to analyzing IPE issues. His argument focuses on America's declining hegemony. It turns on the common assumption that a hegemonic power is required for the smooth functioning of international...