Welfare and Economic Relations

In welfare and economic relations, as in security, there is a dilemma which sets the parameters for international cooperation and governance. The welfare dilemma arises in an international economy in which each state can, without the intervention of a central authority, decide on its own trade and monetary policies. Thus each state may try to increase its share of the economic pie by raising tariffs, imposing import restrictions, or devaluing its currency. If, however, all or most states seek to increase their share of the economic pie at the expense of other states (i.e. through ‘beggar thy neighbour’ policies), some may achieve a degree of short-term success; in the long term, however, the shares will stop growing while the overall pie will shrink. The welfare dilemma describes a social trap in which trade or monetary policies aimed at increasing welfare for individual states place both the community of states collectively and also each state individually in a worse situation than would have been the case with effective international cooperation and governance. Achieving such cooperation is further complicated by conflicts about the distribution of gains from cooperation as well as the ability of domestic interest groups to block international cooperation and governance.