Buying cooperation: financial inducements and the reconstruction of relations between major powers

Abstract

Creditor states have used financial inducements in an attempt to influence the security and foreign policies of their indebted peers for centuries. We examine when inducements are effective and whether they can promote cooperation. Analysis of three cases involving major powers – the United Kingdom’s use of cheap capital to help secure a favorable peace treaty with the United States (1871–1872), the United States’ unsuccessful offer of a reconstruction loan to the Soviet Union (1943–1946), and West Germany’s offers of loans to the Soviet Union to enhance post-Cold War cooperation (1989–1990) – illuminates the viability and relational effects of financial inducements. We argue that success depended on the confluence of facilitating conditions – target states facing serious financial challenges that require external financing, the absence of other suitable creditors, and a low risk of future conflict and cheating. Our research also highlights the importance of second order effects. Financial inducements can help to facilitate the reconstruction of major power relations in more cooperative terms.