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CIAO DATE: 3/99
The Economics of Integration, The Politics of Regionalism: Interdependence and Integration Theory Revisited *
Graduate School of International Political Economy
University of Tsukuba, Japan
International Studies Association
40th Annual Convention
Washington, D.C.
February 16–20, 1999
Abstract
Integration is a process toward inter-state security. Forty years after the initiation of inter-state integration as a cooperative process in Western Europe, regional initiatives continue to emerge in the international system. Have neighboring countries chosen to become more integrated, or, are regional initiatives simply a formal recognition of an on-going process? Does either an economic or political process initiate an integration process, or are they inextricably linked? And, if integration proceeds among countries with wide gaps in structural power and levels of GDP, does integration, as a cooperative process, require an expanded definition? This chapter reexamines the functionalist foundations of integration theory that preceded the arrival of the neofunctionalist interpretation with its emphasis on regulatory, institution-based integration. It is here where economic and political integration can be outlined as two distinct processes, the convergence or divergence of which ultimately rests on security concerns of the state. Regional integration occurs among countries whose borders affect their mutual security and where economic and political processes coincide. Economic integration, often described as a “market-led” process, is founded on a stable international system and proceeds by a multiplication of interdependent relationships in often geographically discontinuous economic sectors in global markets. The transnational consolidation of firms and interstate integration processes often overlap. But the extent to which they do depends on the geographical scope of the economic sector concerned, as well as the state’s foreign policy.
Integration and interdependence are theoretical approaches which hark back to the political science and economics literature during the early stages of regional integration in Western Europe. The terms integration and interdependence have been frequently used interchangeably (Balassa 1961; Cooper 1968; Nye 1965, 1968b, 1988; Tollison and Willett 1973; Haas 1975; Keohane and Nye 1975a; Baldwin 1980: 480). Balassa (1961: 56) points to the interdependence of economic and political factors in the integration process: Integration increases the interdependence of the national economies participating in a union through a rise in the interdependence of industries and capital markets. Nye (1968b) described the European Economic Community (EEC) as a complex web of interdependences. Haas (1975: 79) suggested that European integration was occurring at a reduced level and scope and that only fragmented issue linkages could be discerned in the European Community’s collective decision-making. Keohane and Nye (1975a) described integration as both a process and an end state, and, like the condition of interdependence, on-going at any number of levels.
Integration is any level of association between actors, on one dimension or another of various types of integration, such as economic, social, and policy integration. This places “integration” on the same analytical level as “interdependence” which is not closely associated with a teleological or process-oriented theory (Nye 1971: 26; Keohane and Nye 1975a: 366).
Integration is a macro-level process and interdependence is a micro-level phenomenon. On this basis, integration and interdependence are described by different variables. Keohane and Nye (1975a) provided a crucial analysis of the juxtaposition and intersection of integration and interdependence on the basis of different variables. Integration is a structural and interest-based process and often takes place within an institutional framework (Keohane and Nye 1975a: 368). Interdependence is a policy condition among states which was affected by transactions between transnational actors.
Institutional integration refers to structures; and attitudinal integration focuses on the compatibility of attitudes at a given time, rather than to sensitivities of attitudes of one set of people to those of another set. These usages of “integration” therefore refer not only to different substantive dimensions of the phenomenon, but to different types of processes as well. This is why they have no exact parallels in usages of the term “interdependence,” which always refers to the effects (sensitivity or vulnerability) of patterns of transactions, whether actual or anticipated (Keohane and Nye 1975a: 375).
The greater intensity and duration of integration was expected to build toward a gemeinschaft -type loyalty. Interdependence was less durable and was based primarily instrumental, gesellschaft -type association (Nye 1965: 871). The question was how resilient interdependent relationships where and whether or not they promoted integration. Interdependence was advanced particularly through the actions of multinational corporations, which increased their direct investment activities to such an extent as to cause a qualitative change in international economic relations (Krause and Nye 1975: 325). The duration of their interest, as indicated by the length of the investment relationship, implied that interdependent relations could be longer-term than was previously suspected.
A slowdown in the European integration during the 1960s and the failure of the dominant paradigms to explain this adequately tended to throw doubt on the general validity of integration theory (Keohane and Nye 1975a: 365). The impact of outside environmental factors had impeded the process of European integration (Nye 1965). Drawing from the experience of European integration, Nye (1965: 871) points to discontinuities in integration processes promoted only by increasing interdependence and that a deus ex machina which generates the political response necessary to institutionalize the process. 1 Just as the process of European integration faltered in the middle of the 1970s, regional integration theory too became a “dead” theoretical issue. A serious flaw of this theory was its assumption of the instrumental rationality and an underestimation of the difference between national governments and other ‘interested’ actors (Feld 1966: 395). Haas went so far as to suggest that regional integration theory was obsolete:
The theories we have developed for describing, explaining, and predicting regional integration have a tendency not to predict very accurately the events which come about. It has been suggested that we can probably devise better theories which would lead to more dependable findings. But the effort is probably not worth our while (Haas 1975: 1).
Keohane and Nye (1975a), however, did not propose to discard integration theory nor to quit the discussion of the relationship between integration and interdependence. Instead, they suggested that the focus of the discussion should be adjusted in geographic scope and range of activities and that integration must be considered within an historical context and a changing international system. Policy integration within a limited scope and on an incremental basis has been a viable part of the European Union and helps to connect the literature on regional integration with that on interdependence (Keohane and Nye 1975a: 389).
We seem to have moved into an era in which, at least among developed nonsocialist states, the manipulations of economic interdependence is an increasingly important means of influence, and the use or threat of force is less dominant. If so, integration theory, suitably shorn of its regional limitations, will become increasingly relevant to the analysis of world politics (Keohane and Nye 1975a: 394).
Integration had accomplished its initial objective, to transform Western Europe into a pluralistic security community. Many of the insights from integration theory were then transferred in the early 1970s to the growing and broader dimensions of international economic interdependence (Nye 1988: 239). The distinction between ‘high policies’ (i.e., those associated with security and the continued existence of the state) and ‘low policies’ (i.e., those pertaining to the wealth and welfare of the citizens) had become less important as low policies assumed an increasingly large role in any society (Morse 1970: 377). The focus turned to the management of complex international economic relations and ensuring economic growth to support the integration process. With time, however, the number and size of relationships between non-state actors across national borders increased and the issue areas raised by an increasing number of interdependent relationships affected state policies.
Neither now nor in the 1960s and the 1970s, has the distinction between interdependence and integration always been clear. As the number of interdependent economic relationships continued and national economies became increasingly ‘vested’ in transnational relationships, a clear distinction between integration and interdependence is ever more difficult to make. So, why consider integration in its fundamental form again? The intent of my work is not to disregard Ernst Haas’s words but to satisfy a recurring interest in regions and integration. The terms are used in increasing frequency, often without direct reference to an underlying theory, to warrant another look at how they are applied to the wide ranging discussion of integration, interdependence and sometimes derisively, globalization, regionalism and regional blocs. The fits and starts of European integration (Tsoukalis 1991: 2), as well as the initiation of regional integration processes in other parts of the world, present more than a few issues for theoretical discussion. According to Nye (1988: 239), the development of regional integration theory outstripped the development of regional communities. When, in the late 1980s, inter-governmental negotiations culminating in the Single European Act (1986) set the European integration process on the course toward an internal market, some scholars lamented: It seems unfortunate that many of the accounts of European politics have discarded neofunctional [integration] theory without putting anything theoretical in its place (Keohane and Hoffmann 1991: 9). It appears that Haas’ proposal languished because the integration process was slower and proceeded more irregularly than theorists expected.
When the EC stagnates, as in the 1970s, scholars speak of the obsolescence of regional integration theory; when it rebounds, as in 1985, they speak of the obsolescence of the nation-state. Regional integration theory, we read today, has been “unjustly consigned to the dustbin.” 2
Other scholars observed that the analysis of regionalism as a principal of international order which formed such an important element of earlier writings, has begun to reappear (Fawcett and Hurrell 1995: 4).
This, above all, is not a return to the normative discussion of either regionalism or integration in the “theoretical shadow” (Hurrell 1995) of the European Community, nor is it a return to the ontological discussion of the European Union, but an examination of the context in which integration and interdependence are discussed today (see for example, Hurrell 1995; Wallace 1995; Mayall 1995; Caporaso 1996; Vernon 1996b; Baldwin 1997; Katzenstein 1997 and 1998; Coleman and Underhill 1998 et al.). While still applicable in general terms, interdependence and integration theory in a regional context has not addressed a number of issues. First, integration theory does not sufficiently address the political effect of economic activity or the process of interaction between political and economic processes of integration. Nor has the neo-functionalist emphasis on the spillover between fragmented issue linkages been extended to include overlapping or comprehensive relationships, i.e., the emergence of distinct processes of changing conditions of interdependence (e.g. mergers and acquisitions by transnational firms, etc.) leading to a condition akin to integration. Second, the applicability of integration as a process outside a western European context has not been considered. The assumption heretofore has been that integration and interdependent relationships occur only in countries of similar economic size and levels of industrialization, either between industrialized countries, or between developing countries, but not between industrialized and developing countries. Voluntary integration between states with different levels of structural power is a theoretical and empirical unknown. Issues of structural relationships among states have not been part of the discussion of integration theory.
Postwar (WWII) integration among the industrialized countries of Europe was promoted by security concerns. German resources, Germany’s growth potential, and a German commitment to the West were necessary to fight the Cold War. Economic growth in the context of European integration was the primary tool to do this (Weber and Zysman 1997: 2). The apparent utility of regional integration for coping with external economic dependence was responsible for much of the initial interest of less-developed countries in regional integration (Keohane and Nye 1975a: 381). Increased interest in integration in the underdeveloped countries may be attributed in part to a desire to imitate the European example and to deliberate efforts to counteract possible trade-diverting effects of the European Common Market (Balassa 1961: 6). In many developing areas of the world integration was also a paradigm for industrialization (Mytelka 1972: 240). Integration was expected to foster economic growth in Europe and Latin America through trade and scale economies. Regional integration schemes in less developed areas may have been different processes in causal terms, in terms of important differences in infrastructure, market mechanisms, external dependence, administrative resources, political group structure, interdependence of social sectors, national consciousness, and ideology) (Nye 1988: 880, 855). Integration among less-developed countries, such as those in Latin America, necessitated a high degree of government intervention at the early stages of integration which subsequently gave way to an increased role of private enterprise (Balassa 1961: 10).
After the Cold War, political and economic integration continues in the European continent with the establishment in 1992 of the single market and the introduction in 1999 of a single currency. The issue-areas facing the European agenda also include the multiplication of countries on the continent following the dissolution of the Soviet Union.
The extraordinary events of the late 1980s and early 1990s, from the Urals to the Atlantic, have raised genuinely comprehensive questions about the future of Europe — questions that cannot be broken down neatly into security and economic categories. The new political map of Europe raises a host of questions directly linking economic and security issues for the first time in over forty years, it is easy to see that the biggest issues of economic and political organization are once again on the table, subject to debate and redefinition. That debate is ultimately about the very meaning of national security. 3
Post-cold war security processes include integration among industrialized and developing countries. Strong interest in developing countries to strengthen regional ties among themselves, as well as with the leading economies, represents a significant departure from the 1950s to early 1970s, when many developing countries pursued regional integration among themselves, largely unsuccessfully, as a substitute for stronger ties with the North, rather than as a complement as is the case today (Oman 1994: 14, 29). The security implications of this type of integration emphasize the economic aspects of security perhaps to a greater extent than they did in post-WWII Western Europe.
1. Integration, the Experience
The conceptual framework of integration theory is not clearly distinguishable from its main empirical basis, the international relations of Western Europe. Integration was considered to be synonymous with a process observed only in particular regions: Western Europe, and, Central America and East Africa, as long as such processes continued. Western European integration was the product not only of a common culture and history and of a particular geographical proximity, but also of common experiences of disaster and predicament: the war and its aftermath, American hegemony and the Soviet threat (Wallace 1995: 201). Integration in Western Europe was initiated from the normative position of post-war French, German, Benelux and Italian policy makers that war must be avoided and that this could be by increasing economic cooperation among European countries. Inside the European Community as well, Germany could be managed (rather than balanced, as in more traditional diplomatic perspectives) and integrated by promoting the joint project of European-wide growth (Weber and Zysman 1997: 2). The acceptance of security dependence within NATO was one of the essential compromises on which European cooperation and integration was built — a fact that makes it vital to examine the relationships between economics and security issues in other parts of the world (Hurrell 1995: 48). This set of conditions constituted the benchmark from which the aspects of integration theory emerged. Between the end of the war and 1950, British and Scandinavian leaders tended to present “ functionalist” views, favoring the coordinated provision of material needs among states, whereas continental Europeans tended to be “federalists” advocating the establishment of a supranational state (Nye 1971: 49).
European integration emerged from a practical impetus. The initial basis for European cooperation was the multilateral distribution of Marshall Plan aid funds between 1948 and 1951. While there was no formula or set criteria for distributing the aid, the Marshall Plan of March 1947 was conditional upon its European recipients cooperating closely in distributing the aid and agreeing to concerted policies for economic reconstruction among them (Wallace 1995: 208). Over half of the capital allocation of US aid was in economic sectors where the United States enjoyed a comparative advantage. The bulk of US aid was in the “4 F’s”: food, feed, fuel and fertilizer. While bureaucrats from western European countries first organized around the distribution of aid funds, European cooperation was spurred toward the establishment of region-wide institutions to maintain communication links among government officials and to oversee inter-regional trade partly to reduce economic dependence on US aid. The institutionalization of integrative processes was partly in response to perceived US corporate influence under the guise of Marshall plan aid in the domestic economies of European countries (Kindleberger 1969; Feld 1970: 210).
Rather than trying to achieve unity among states in all aspects, the early strategists of European integration mapped their course in terms of the politics of different sectors (Keohane and Nye 1975a: 395). In 1950 the Schuman plan to unify Europe’s coal and steel markets laid the foundations of Franco-German reconciliation which later developed into close cooperation and thus provided the cornerstone and main driving force of regional integration (Tsoukalis 1991: 15). The coal and steel industries were of central importance to European integration for both economic and defense reasons. 4 Formal transnational economic cooperation developed from this narrow functional base (Lindberg and Scheingold 1970: 12). The 1951 Treaty of Paris established the European Coal and Steel Community (ECSC) to serve as a supranational authority over the production of coal and steel. A regional institution such as the ECSC, once it was formed sparked a qualitatively different and potentially self-sustaining process of spillover. 5 The Treaty of Rome followed in 1958 with the creation of a customs union in the form of the European Economic Community (EEC) and the European Atomic Energy Community (Euratom). European integration was founded on these three communities. The EEC was a culmination and extension of the Basic ECSC bargains crafted by Jean Monnet and Robert Schuman (Weber and Zysman 1997: 2). The EEC was by far the most important and far reaching of the three communities (Tsoukalis 1991: 17). The European Economic Community provided a measure of assurance for a definite direction in economic development and thereby constituted a risk-reducing element in the calculations of firms considering border-crossing collaboration (Feld 1970: 210). The treaties of the Paris and Rome were also constitutional documents which created central decision-making institutions — the European Commission, the Council of Ministers, the European Parliament and the European Court of Justice — thereby formalizing the economic and political integration process in Western Europe.
At the time of the creation of the European Common Market in 1957, “integration” was used with at least four different meanings: political unification, economic unification, economic and political cooperation, and more free trade. 6 The golden years of Western European integration, from 1958 to 1965, coincided with a period of continuing economic growth, with North America and Western Europe — the North Atlantic Area — the focus of the world economy, and the OEEC (Organization for European Economic Cooperation set up to coordinate Marshall Plan assistance) was transformed into a body closely paralleling NATO, the OECD (Organization for Economic Cooperation and Development) (Wallace 1995: 210). Since that time, European integration, though still on going, has proven to be a less than deterministic process.
The early success of the Community, in what retrospectively seems rather special environmental conditions, tended to produce illusions of inevitability among academics, and delusions of grandeur among Eurocrats. The Rome treaties, as Kitzinger observes, were drafted in some haste to exploit the political constellation of 1955–57, when Guy Mollet was the French Prime Minister, and before Konrad Adenauer [the Federal Republic of Germany’s first chancellor, 1949–1963] had to face his electorate in the autumn of 1957, and while the economies of Europe were experiencing a boom. 7
During the 1960s and 1970s various shocks from inside and outside the region set back the process of political integration (Warnecke 1972: 11). Also, violent conflicts between states took place within regions where integration schemes were in effect — notably, in Central America and East Africa in 1969 and 1972 respectively (Keohane and Nye 1975a: 375). The European Community which emerged in the 1970s was characterized much more by intergovernmental bargaining, by intermittent summits which developed into regular European Councils, comprised of heads of state and government, by carefully crafted compromises rather than grand designs (Wallace 1995: 213). The apparent dissipation of an incremental political process toward some perceived goal, albeit temporary, left integration theorists frustrated. Theorists were most disappointed with the inability of regional integration theory to include external factors in a model that was presumed to be explaining an exclusionary process. More recently, however, external events have contributed to European integration. In Europe, competitiveness on the global market remained the main issue, and now it appeared regional integration was, after all, the prerequisite (Hoffmann 1989: 30). Sandholtz and Zysman (1989: 95) propose that changes in the international structure triggered elite bargains between European Community institutions, national governments and leaders of major companies: The trigger has been a real shift in the distribution of economic power resources, America’s economic decline relative to Japan’s ascent. The success of the Japanese in gaining the leading edge in certain chip technologies in the 1980s was a major factor behind the decision of the major European IT (information technology) firms to push governments to create the Single Market and a European high technology policy in the 1980s. 8
The acceleration of EU integration through the European Single Market Program was in many ways a response to the perceived relative economic decline of Europe in the world economy since the 1970s. Nowhere has European concern been greater than in the area of high technology, where competition from American and Japanese corporations became intense over the past decade (Wyatt-Walter 1998: 140).
The saliency of external conditions as an impetus for European integration reappeared in the 1980s. This time, greater attention to the impact of transnational corporate alliances and FDI in the policy process was crucial to understanding the way in which policy in Europe has evolved (Wyatt-Walter 1998: 153).
2. Integration Theory Revisited
Integration is a primary approach to international organization. Students of integration theory have oriented their work heavily toward the analysis of peaceful change in an anarchic system.
Integration like its cousin, peace, is foremost a property of the international system viewed as a whole. In our general definition, the integrative process is seen as culminating in a community-like political form which embraces a group of people who, originally at least, were organized politically as a system of sovereign nation-states (Pentland 1973: 193).
Integration is associated strictly with regional processes and the parts forming the whole were sovereign states. Hurrell (1995: 38) that there are no ‘natural’ regions and definitions of ‘region’ and indicators of ‘regionness’ vary according to the particular problem or question under investigation. An international region is a limited number of states linked together by a geographical relationship and by a degree of mutual interdependence, while regionalism is a doctrine advocating the formation of interstate groupings or associations on the basis of regions (Nye 1968a: vii). Integration occurs among countries or provinces whose geographic borders affected their mutual security, where economic and political processes coincided. Integration therefore is a political process fostered by economic processes.
International political integration is a process whereby a group of people organize, at the outset, in two or more independent states, and then come to constitute a political whole which can in some sense be described as a community (Pentland 1973: 189). The study of political integration centers on a statist approach and a supranational institutionalist approach. The statist approach to integration theory does not foresee a change in the inter-state system as integration proceeds. The second approach to integration, as outlined by neo-functionalism and federalism, is a process whereby the international system ultimately supersedes the nation-state. As an alternative to the nation-state, integration, in the second approach, was a deterministic process leading toward establishment of a larger, supra-national institutional unit. The integration of states toward supranational institutions had been the focus of much of the earlier discussion of European regional integration. Table 1, Approaches to Integrative Structures and Processes, outlines the four approaches to integrative processes: the pluralist emphasis on traditional inter-state diplomacy; the largely apolitical, welfare needs-based functionalism; the political development and elite formation characteristics of neo-functionalism; and lastly, the federalists negation of the nation-state in favor of an ever larger supranational institution. This four-dimensional model expresses the process of system-change as well as the open-ended and undetermined nature of integration (Pentland 1973: 216).
Pluralists retain the classic distinctions between national and international political systems thus integration involved the end, not of the states, but of the ‘state of war’ among them (Pentland 1973: 36). In the pluralists’ definition, integration is a process by which a group of states evolves from a Hobbesian anarchy to a Deutschian security community on the basis of responsiveness to mutual transactions between states. The international community is a felicitous combination of the values of national self-determination on the one hand, and international peace and security on the other (Pentland 1973: 30). Integration is the process of mutual regulation of behavior among independent ‘subsystems’ in an international system. 9 The integration process rests on the ability to sustain the growth of interdependent relationships, informal structures, and a high degree of communication and interaction at all levels of society. A pluralist community of states requires a firm basis of social, economic and cultural ties unlikely to be dissolved rapidly (Pentland 1973: 39). States’ capabilities are enhanced by increased communication among them. Pluralism in modern society tends to be associated with a process of broadening of elites as society become more complex. 10 Table 1. Approaches to Integrative Structures and Processes
| Pluralism | Functionalism | Neofunctionalism | Federalism | ||
| I. The End-Product: | |||||
| Structure | Community of States | Administrative network responsive to community needs | Supranational decision-making system | Supranational state | |
| Evidence | Probability of peaceful conflict resolution; communications: flow intensity | Degree of ‘fit’ between structures & functions; need-satisfaction | Locus of decisions (scope & level) | Distribution of power (formal & informal). | |
| II. The Process: | |||||
| System | Self-sustaining growth of interdependence & informal structures | Technical self-determination; imperatives of functional needs & technological change | Political development: growth of central institutions through ‘forward linkage’ | Constitutional revolution: dramatic redistribution of power and authority | |
| State | Increase of capacity for decision-making, information & responsiveness | Reluctant cooperation to solve technical & economic problems | Bargaining process where governments pursue interests among other groups | Bargaining resulting in Hobbesian contract among elites of states | |
| Individual | Social learning through communications & interaction (elite & mass) | Habits of cooperation derived from satisfaction of utilitarian needs by new institutions | Effects of successful decision-making & conflict resolution on elite attitudes | Differentiation of loyalties according to level of government. | |
At the societal level, the communications approach considers all types of transactions, trade, mail, and tourist flows as equally salient. Karl Deutsch was not only interested in processes of social communication, but also the broader question: Under what conditions security communities, particularly amalgamated (highly institutionalized) security communities, are formed.
[Integration is] the crossing of a threshold, from a situation where war between the two political units appears possible and is being prepared for, to another situation where it is neither. The crossing of this threshold, and with it the establishment of a security community we have called integration (Deutsch 1979: 181).
The concept of a security community adds another dimension to integration processes in a pluralist international system. Deutsch (1979: 182) distinguishes between two types of security community: 1) an amalgmated security community with a single government and a single sovereignty, and 2) a pluralistic security community, which includes more than one sovereign government. Pentland (1973: 31, note 2) noted that Deutsch’s notion that a security community was comprised of interdependent states (Deutsch 1968) which somewhat contradicted his earlier concept of integration that any system was integrated because, by definition, its units were interdependent (Deutsch 1954).
The difference in perspectives on what is a community forms the basis of a discussion of institutions and organizations. Deutsch and Haas agreed upon elite complementaries and a predisposition toward policy coordination as structural conditions for integration (Keohane and Nye 1975a: 379, Table 3). They differed however, on the nature of integrated relationships. Deutsch kept an elite focus, considering the development of a strong core area as important to promoting integrative processes. Haas, on the other hand, stressed the importance of more effective pluralism and similarity in size and power of member states. Haas’ approach also stressed a high rate of previous transactions. Deutsch further listed structural requirements including superior economic growth, a wide range of transactions and greater mobility of people.
Functionalism, the second approach to integration, is concerned with the satisfaction of welfare needs. For traditional functionalists such as Mitrany (1966) and Claude (1971), the ultimate goal of integration is a complex, interwoven network of cross-national organizations performing most of the traditional welfare functions of the nation-state, while also, rendering war impossible. In a world of a hundred and more states sovereignty can in simple fact never be eliminated through a formula but only through function, such that it leads states to shed national functions and pool authority in them. 11 For the functionalist, an administrative framework responsive to community needs achieves the objective of peaceful integration in the international system. The state, while not a barrier to be overcome, is seen as a hindrance to the satisfaction of welfare needs. Hence, the emergence of utilitarian needs-based institutions is prescribed for during the integration process. While the state may promote international cooperation by traditional diplomatic routes, it is less willing to cooperate with other states in the provision of welfare. National interest, however, prevails on economic issues. The functionalist promotes an integrated system in the form of a web of organizations meeting most human needs and responding to technological change (Pentland 1973: 70). According to Claude (1971: 348), the “mission of functionalism” is to make peace possible by organizing particular layers of social life in accordance with particular human requirements, breaking down the artificialities of zoning arrangements associated with the principle of sovereignty. The degree of fit between systemic structures and functions is evidence of successful integration.
Functionalism eschews the rigidity of a formula and the neatness of a blueprint; it projects the growth of international organizations as needed (Claude 1971: 352). Functionalism can be seen as the argument that integration in the functional dimension — particularly its economic sectors — works gradually but decisively on the other dimensions (social and political behavior) and induces change, first in behavior and attitudes, then ultimately in decision-making as well (Pentland 1973: 215). Functionalism, however, cannot guarantee that one condition leads inexorably and interminably to another in international relations (Claude 1971: 355).
Lessons about integrative processes associated with one phase do not generally carry over into the next because the specific policy context — often short-range — determines what is desired by governments and tolerated by them in terms of integrative accommodations. There is no dependable, cumulative process of precedent formation leading to ever more community-oriented organizational behavior (Haas 1961: 376).
An “autonomy of functional contexts” means that the fact that a coalition of political actors favored integration in one particular area did not imply that the impulse to integrate will necessarily spread to another area in which different groups were involved and held power (Haas 1958). This concept was developed to account for the fact that functional spillover could not itself be counted upon to produce the ever more cumulative process foreseen by some functionalists (Lindberg and Scheingold 1970: 109).
Neo-functionalism, the third approach to integrative structures and processes, outlined in Pentland’s table, is built on a functionalist base. In contrast to earlier functionalism, however, neofunctionalism makes direct reference to emergent political systems and processes toward a supranational decision-making system. States, in the neofunctionalist integration process, are more prone to cooperate in the area of welfare but these relationships are subject to bargaining over scarce economic resources. In the transition from functionalism to neofunctionalism the independent variables determining the process of integration are changed from welfare provision to community members to the creation of supranational institutions. The implication, of course, is that the integration process is directed not only by welfare needs and utilitarian-based organizations but increasingly directed by the state. The role of the supranational state is to deliberately choose an economic sector that was politically important to the integration process.
The important actors in the neo-functionalist model are integrationist-technocrats and those interest groups which, for a variety of convergent aims, persuaded governments to create a regional economic organization. Once established, and depending on the degree of initial commitment, these organizations would, it was thought, unleash new forces of sector imbalance and engrenage, increase flows of transactions, and involve an increasing number of social groups which would gradually focus their activities on the regional level (Nye 1971: 59).
Neofunctionalists focus on the question: Under what conditions does economic integration lead to political integration (Keohane and Nye 1975a: 378). The neofunctionalist process of spillover in fact presupposes considerable political and economic interdependence (Pentland 1973: 121; Balassa 1961: 6). Neo-functionalism makes several assumptions about the prerequisites of an integration process: 1) the inherent functional linkages of tasks; 2) increasing flows or transactions; 3) deliberate linkages and coalitions; and 4) economic pressure groups, including at a later stage the formation of groups at the regional level. Subsequent research suggests at least three other process mechanisms may arise or be enhanced: 5) involvement of external actors; 6) regional ideology and intensification of regional identity; and 7) elite socialization (Nye 1970: 803).
For the neofunctionalist, the whole range of activities of the state, as a political organization, is under scrutiny. Neofunctionalism assumes the existence of a regional political culture which permits ‘non-ideological’ politics to be practiced, at least in certain tacitly approved sectors of social life (Pentland 1973: 122). Neofunctionalist theory emphasizes the importance of depoliticization at the early stages of integration to avoid premature politicization (Keohane and Nye 1975a: 399). Neofunctionalists share the view that political integration is not a condition but a process of change which leads to some sort of political community based on common understanding among emerging elites, and a shift in attitudes toward a new center of authority. The deliberate design of institutions promotes social and political integration (see Nye 1971: 51). Neo-functionalism, like the theory of political development, assumes the advancement toward a supranational political community. Pentland (1973: 113) describes neofunctionalism as an amalgam of federalism and functionalism.
Neofunctionalism remains the sole attempt to fashion a coherent and comprehensive theory of European integration. The great contribution of neofunctionalism has been to break with the monolithic view of the nation-state and to perceive it as a complex of interest and issue areas, some of which have more integrative implications than others (Pentland 1973: 122). The older functionalist’s view of politics tends to see political (integration) as a concrete form of activity (usually associated with defense, foreign affairs, or the acquisition of power), while the neofunctionalist sees it in the abstract (Pentland 1973: 107). The neo-functionalist approach assumes a spillover of functional tasks, interests in the political process of integration without providing an analytical framework.
The final approach to integrative processes and structures is federalism. The federalist approach to integration theory is the only one to directly address the states’ willing abrogation of their own sovereign power (Pentland 1973: 166). Federalists view integration as a political phenomenon. The formal division of power between levels of government and the establishment of a supranational state make integration a federalist process. Foreign policy elites’ decide which form and degree of integration is acceptable (Pentland 1973: 167). The implication is that, within a constitutional framework, elites parcel out portions of the state, redistributing power and authority. The outcome of a federalist constitutional revolution is a differentiation of loyalties according to level of government. There are two streams of federalist theory: classical and sociological. The division of power is central to classic federalist theory. Classical federalism applies a constitutional standard in determining if integration has been consummated or not. Sociological federalists such as Amitai Etzioni describe the end product of integration as a political community. A federalist political community, as distinct from the pluralist political community, is a single administrative-economic unit and a focal point of political identification for its citizens (Etzioni 1965: 15).
Confusion remains at the heart of the conceptualization of integration, whether it is merely a process without a direction, or a process leading toward an ‘end-state’. National sovereignty is treated differently in each of the four approaches to integration theory. Pluralist theorists do not challenge the nation-state, but rather reaffirm its basic functions and simply seek to regulate its diplomatic relationships. Puchala (1970: 743 note 15) stresses the irrefutability of Deutsch’s hypothesis that international community is a necessary component of stable international federations. Functionalists challenge the state, but only in the areas of the provision of material welfare. In the neofunctionalist approach, on the other hand, the supranational system, in theory, may not only perform the function of allocating material benefits, but also provide internal and external physical security, thereby becoming the prime focus of political loyalties and expectations. Neofunctionalism, grounded in the American experience of nation building based on a strong economy, fills a gap in the functionalist and federalist concepts of integration.
The statist approach, outlined by pluralism and functionalism, fit squarely into a discussion of interdependence, as a crossover between realism and institutional liberalism. 12 The pluralist process of integration leads to a community of states. Pluralism, and to a lesser extent federalism, by placing emphasis on power relations, stood in contrast to functional and institutional explanations of regionalism (see Mansfield and Milner 1997: 9). The basic argument of functionalism, however, is substantially different from realist foundation of a pluralist approach to integration. Functionalism as a theory of international organization presents a minimal frontal attack on state sovereignty, which is [only] gradually made irrelevant by a reordering of the world along technical-functional lines. 13
Unlike the indirect functionalist strategy of political integration through economic, social and technical sectors, federalists share with the pluralists the perception of integration as a directly political phenomenon that has to do with the behavior of national political elites and with problems of state power (Pentland 1973: 149). Other writers make no distinction between the federal and functional principles, suggesting that new forms of economic federalism (of large enterprises and of functional organizations such as the Coal and Steel Community) are emerging as conceivable rivals to territorially based organizations (Pentland 1973: 152). The sociological approach of federalism is similar to the pluralist approach to integration in its terminology: a union of groups united by one or more common objectives, but retaining their distinctive group character for other purposes. 14
The federalist approach to integration is distinct in that integration is not a process but an end-state. Federalism sees integration as a static condition in the form of a supranational state. Mitrany (1968: 56) pointedly criticized the federalist approach to regional integration: If the all-inclusive union which “Europeans” want is to be based on a restrictive balance-of-power it would not be capable of growing freely into the kind of planned welfare society. On the other hand, if it was to be set up without traditional federal constraints, it must grow — as it would have more, and more mixed, elements weld together — into a system more unitary than any existing federation. Many writers, however, make no distinction between the federal and functional principles by suggesting that new forms of economic federalism of large enterprises and of functional organizations such as the Coal and Steel Community are emerging as conceivable rivals to territorially based organizations (Pentland 1973: 152).
The strength of the integration literature rests on its attempt to analyze the politics of economic interdependence, particularly in the European context. Its chief weaknesses derive from the strong teleological orientation of much of the literature and its focus on a process leading toward institutionalized regional unity (Keohane and Nye 1975a: 394). By declaring that “the established nation-state is in full retreat in Europe,” Haas (1961: 93) set himself up in a most difficult theoretical position to reconsider (Pentland 1973: 142). Disputes continue among theorists about the importance of attitudinal integration for explaining other aspects of the phenomenon, such as institutional or policy integration:
A widely held definition of political integration is “institutional integration,” that is, the extent to which common institutions have been developing for a region. Institutions are usually sought not for their own sake but for the effects they are likely to have on social and economic conditions, usually through effects on governmental policies. A focus on policy integration therefore concentrates more directly on the critical outcomes that affect people’s lives, and the analyst following this approach is less likely than the institutionally oriented observer to be misled into equating the political significance of an integration process with its degree of formal institutionalization (Keohane and Nye 1975a: 374).
It is clear from neofunctionalist writings that a primary requisite of any integrative process is some sort of established pattern of elite interaction, usually formalized in system-wide institutions (Pentland 1973: 120). Integration may also proceed by the expansion of supra-national institutions or the expansion of issue-areas in an inter-state policy framework. Cooperation in these areas is promoted by regional institutions or policy networks among states.
Even where direct leadership is not exercised, regional institutions have frequently structured agendas by determining which clusters of issues are considered to be “issue-areas” and which are not. To the extent that world politics in many issue-areas develop in the directions we described, many of the questions about institutional roles — as leaders, as constraining arenas structuring issues, and as foci for control — that have concerned integration theorists will be increasingly relevant to the analysis of international institutions in such global issue-areas as monetary policy, ecology and oceans policy (Keohane and Nye 1975a: 399).
Over time, the integration process has not formally replaced the nation-state with a supranational one. Recognizing a broader scope of integrative processes is essential to understanding regional integration and other continuous processes. Economic and social processes of integration occur outside an institutional context and intergovernmental, institution-based political integration does not proceed smoothly or quickly toward a supranational state. While the pluralist, functionalist, and even neo-functionalist approaches to integration theory are discounted as being vague and lacking the conceptual rigor to constitute a distinct paradigm, they do provide a valuable starting point from which to consider integration processes emerge. The consensus seems to be that the most ‘inherently expansive’ tasks are to be found in economic sectors (Pentland 1973: 113). Since the early 1990s there has been a general reaffirmation of the part that neofunctionalist spillover plays in regional integration (Keohane and Hoffmann 1991: 18; Tsoukalis 1991: 65). This resurgence of interest in the phenomenon is based on a more nuanced understanding of Haas’s definition of spillover and the recognition that integration processes continue to be promoted by the conscious efforts of transnational elites as well as by officials of regional institutions already in place. Spillover can also lead to task expansion once regional institutions have been established. A new form of spillover, not from one economic sector to another but from one institutional dimension to another, took place (in preparation for the Single European Act effected in 1992) (Keohane and Hoffmann 1991: 21). The broader institutionalism that results: 1) incorporates private sector and public sector arrangements; 2) appreciates the coalitional bases of such arrangements; and 3) recognizes the utility of combining political support for local firms with pressure on them to conform to market forces. 15 Neo-functionalist insights may become more relevant in the future as regional cooperation deepens and as regional institutions become more firmly established (Hurrell 1995: 61). The role of firms in European policy is crucial for understanding policy developments, even where key “national security” issues are involved (Wyatt-Walter 1998: 153).
3. Economic Integration Theory
Economic integration relies on economic growth and an ever-expanding perimeter of relationships to promote a stable international system. The avoidance of future wars between France and Germany, the creation of a third force (the political effects of economic integration) in world politics, and the reestablishment of Western Europe as a world power are frequently mentioned as political goals that would be served by economic integration (Balassa 1961: 6). However, economic and political integration processes are different, and economists and political scientists call upon different criteria to measure integration. Political scientists argue that economic integration is based largely on the political support of the nation-state for free trade (Lindberg and Scheingold 1970: 9). Balassa, on the other hand, points to the effect of a “discipline of the market” to coordinate monetary and fiscal policies between states in order to ensure economic growth emerging from the increased transactions between them (Balassa 1961: 269).
Integration theorists often ignored the importance of economics, as an activity and as part of the political process among states and other social units. This is based on the premise that, the science of economics presupposes a given political order, and cannot be profitably studied in isolation from politics. 16
Balassa (1961) argues that political and economic factors are interdependent in economic integration. Political motives may prompt the first step of economic integration, but economic integration also reacts on the political sphere, similarly, if the initial motives are economic, the need for political unity can arise at a later stage (Balassa 1961: 7). 17 Tinbergen (1954:142) suggests the utility of distinguishing between the integration of the economies and the integration of economic policies (Tinbergen 1954: 142).
Economists generally refer to three aspects of economic integration: liberalization (free movement of resources), development (scale, capital and competition) and coordination of policies (Pentland 1973: 135, note 1). In economics, integration is the process which leads to the creation of the most desirable structure of international economy by removing artificial hindrances to optimal market operations and deliberately introducing elements of coordination or unification (Tinbergen 1954: 95). The process of economic integration moves through clearly definable stages of integration toward market equilibrium, i.e. uniform prices and free factor mobility. Economic integration proceeds by five stages: 1) free trade area (removal of quantitative restrictions on commodity movements, e.g. tariffs, among member states); 2) customs union (equalization of tariffs with nonmember countries); 3) common market (restrictions on factor movements abolished); 4) economic and monetary union (combines the suppression of restrictions on commodity and factor movements with some degree of harmonization of national economic policies); and 5) complete economic integration (Balassa 1961: 2). Total economic integration presupposes the unification of monetary, fiscal, social, and countercyclical policies and requires the setting up of a supra-national authority whose decisions are binding for the member states (Balassa 1961: 2). Balassa’s primary concern is with the price-cost effects of economic integration. Balassa proposes that there is no limit to the size of the market if the costs do not exceed the benefit of market-based exchanges.
The five successive stages succeed in defining a structural process of economic integration, thus adding a political variable to the economic process of integration. Economic integration theory emphasizes the fusion of national markets without directly addressing issues of sovereignty (Balassa 1961: 2). The union of national markets would end with policy integration but not necessarily with a unified institutional structure (Balassa 1961: 272). Economic theory of customs unions was based on international trade theory and the problems of resource allocation in a static framework (Balassa 1961: ix).
In traditional trade theory it is customarily assumed that trade takes place between countries which have no spatial dimensions. Correspondingly, locational problems have also been neglected in the theory of customs unions (Balassa 1961: 39).
Economic integration is a dynamic process which relies on economic growth to proceed. While maintaining a focus on the economics of market size, economies of scale, competition, and mutliplant economies, economic integration theory proposes conceptualizing the effects of the size of the market transcending national borders. Economic integration would remedy distortions in the location of productive activity caused by the decomposition of an economic area into national units (Balassa 1961: 6). Larger-scale economies in a wider market would also lessen the uncertainty in the intra-regional trade transactions and induce a faster rate of technological change. Economic integration is sustained by a process of deepening interdependence between firms (i.e., consolidation of firms by mergers, acquisitions and joint ventures); by the increasing number of these relationships, as well as the continuity and growth over time of existing interdependent relationships.
Where traditional economic theory ignored the locational aspects and concentrated on the domestic-international dichotomy (Balassa 1961: 191), economic integration theory recognized the effect industry location had on integration processes. The location aspects of economic integration theory distinguish between the size and scope of markets in different economic sectors. More easily transportable goods and services can be traded across longer distances while less easily transportable goods and services are usually traded within a more limited geographic range. Economic integration weakens the tendency toward market agglomeration along national lines but, at the same time, intensifies agglomeration tendencies toward regional markets. 18 Private enterprise is an example of this decentralization process (Tinbergen 1954: 98). An increase in the size of the sector-specific markets therefore is likely to create “growing points” that will permit the introduction of advanced technology in the supplier and buyer industries (Balassa 1961: 156). Market location and investment transactions help to define the process of political and economic integration. Through its effect on the homogeneity of tastes, on factor movements, etc., social integration has an important bearing on integration by expanding markets (Balassa 1961: 116). The integration of adjacent countries amounts to the removal of artificial barriers that obstruct continuous economic activity through national frontiers, and the ensuing relocation of production and regional agglomerative and deglomerative (Balassa 1961: 3). The assumption is that a region grows or decays as an entity rather than is effected by arbitrary changes in income haphazardly as occurs between states (Balassa 1961: 193).
4. Social Integration, Levels of Interaction
The growth of markets and market transactions is but one aspect of integration. The integration of economic activities takes place within a process for the creation of political communities defined in institutional or attitudinal terms (Haas 1971). Economic integration is the outgrowth of an expanding set of interdependent trade and investment relationships.
Processes of economic integration do not take place inside a vacuum of market mechanisms, they require policy coordination. The policy implications of increasingly interdependent markets represents the political variable in integration. Hence, economic integration is realizable only by political willingness to structure national economies according to some integration framework. It should be noted that the incremental logic does not commit the theorists to a single institutional outcome of the integration process: it is consistent with any number of possible patterns of collective decision-making (Haas 1975: 12).
Policy and institutional changes also require a convergence of interests between states (Nye 1971: 36; Keohane and Hoffmann 1991: 22). Liberal theory proposes that transnational and interstate interactions and norms lead to new definitions of interests as well as to new coalition possibilities for different interests within states (Nye 1988: 238).
A recurring theme in integration theory is the importance of political community and elites in an integrated system. Elites initiate the integration process, and as the integration process proceeds, the emergence of new elites is expected. At the beginning of a formal integration process, high-level decisions made in consultations among national leaders and top-level officials establish a framework characteristic of integration. Much policy coordination at the international level, however, is carried on less through formal organizations with clear mandates than through informal working groups or elite networks more or less closely linked to established institutions (Keohane and Nye 1975a: 361). Social integration is also promoted by transnational business collaboration in addition to economic and administrative transactional flows (Feld 1970: 210). Organizing economic interests follows the expansion of transnational relations, as well as firm consolidation. With increasing interdependence, more and more actors have a stake in a stable international order. In time, here is also the increasing need to create structures which acknowledge long-existing interdependence (Pentland 1973: 77). Within Europe, high levels of interdependence have contributed to a broad acceptance of the need for international agreements by industry, trade unions, environmentalists and national regulatory agencies (OECD 1995: 62). In the early stages of European integration, national economic interest groups, primarily agricultural groups, routed their demands through national governments rather than directly to Community institutions (Feld 1966: 394). Initially, the increasing rate of transnational business collaboration in the Common Market produced a more intensive degree of economic integration. Businessmen promote the permanence of a regional economic organization, both from within and outside the region, preferring to invest in a larger market (Nye 1971: 73).
The firms whose long-term interests purposefully organize their activities to increase certainty and reduce the potential for conflict promote economic integration processes. The process of developing transnational elite networks is a key incentive for policy coordination. The political effects of increased economic interdependence will depend upon a number of other factors, such as perceptions by relevant political elites and asymmetry of dependence (Nye 1971: 31). The more competitive a given firm or sector and hence the greater the level of net exports or foreign investment, particularly in the EC, the greater is the likelihood that the firm or sector will support internal market liberalization (Milner 1988). The level at which these interests coalesce with political integration processes marks whether the integration process is a supernational or a subnational phenomenon. The effect of economic integration on political integration, as measured by a rise in the powers of the EEC institutions, was minimal at first and produced only small incremental advances (Feld 1970: 237). Large companies were at the forefront in the coordination of demands addressed directly to channeled indirectly through the national and EEC authorities (Feld 1970: 225). The coordination of the joint activities was carried out through a network of committees and working groups composed of officials from collaborating firms (Feld 1970: 232). Large collaborating enterprises acted as something of a special shock force for the benefit of much of the EEC business community (Feld 1970: 230). A “commitment to European values” was triggered or deepened as the result of continuous transaction flows between collaborating firms and necessary interaction of their management and technical staffs (Feld 1970: 232). The growing ‘Europeanness’ of the perceptions and strategies by large European firms was nurtured by EC Commission-sponsored technology and development programs including the European Strategic Program for Research and Development in Information Technology (ESPRIT) established in 1984, the Research in Advanced Communications for Europe (RACE), the Basic Research in Industrial Technologies for Europe (BRITE), and the European Research Coordinating Agency (EUREKA) in 1985 (Tsoukalis 1991: 46). A new European business elite, fostered by the Common Market’s removal of some barriers, promoted post-1984 European integration (Hoffmann 1989: 33).
European integration in the 1980s included the role of region-wide organizations of economic interests which were increasingly well defined. The scope of the European Community was expanded by the European Monetary System (EMS) and the number of joint ventures, cross-border mergers and direct investment abroad that now tie the members together (Hoffmann 1989: 34). Direct foreign investment and joint ventures, not just trade was forming the long-lasting links among European countries (Sandholz and Zysman 1989: 120). Among European firms, sectoral cooperation, primarily sharing costs of R&D in electronics, laid the basis for a powerful lobby for a large European market (Tsoukalis 1991: 47). The Roundtable of European Industrialists, established in 1983, became a powerful lobby vis-à-vis national governments inducting major businesses into an alliance with the European Commission (Sandholtz and Zysman 1989: 116).
The Single Market project in the late 1980s facilitated the expansion of intra-European investment as well as intra-European trade... The Single European Act (SEA) thus symbolized a commitment to a sufficient convergence of domestic rules and to an arrangement in which national structures did not themselves constitute obstacles to trade and investment (Weber and Zysman 1997: 3).
The central conclusion of a 1985 EC Commission report was that the greatest benefits of the Single Market would accrue to industries who would be able to achieve greater economies of scale in a unified European market (Milner 1997: 101). 19 The creation of the Roundtable of European Industrialists in 1986 became a powerful lobby behind the scenes promoting the integration process (Tsoukalis 1991: 48). The “recasting of the European bargain” points to elite bargains between the European bureaucracy and national leaders, as well as business leaders, as the driving force toward establishing the single European market by 1992 (Sandholtz and Zysman 1989: 128).
5. Interdependence as a Sectoral Approach to Integration
Interdependence theory, like integration theory, developed out of the experience of post-war international economic cooperation. As a follow-up to integration theory, the interdependence paradigm, while a vague and woolly notion, pointed to increasingly ‘intimate’ transnational relationships. 20 The indeterminacy of interdependence served to loosen the political and economic determinism of integration theory. By shifting the focus of one’s attention from the neo-functionalist discussion of incremental process toward the formation of a supranational state, the interdependence paradigm introduced a particularistic, punctuated, and actor-dependent approach to international organization. Interdependence theorists viewed international organizations not as sources of definitive law but as entities which institutionalized policy networks and within which transgovernmental policy coordination and coalition building could take place (Keohane and Nye 1987: 738). Interdependence also suggested that integration processes were eclipsed by conflicting issues and that the resolution of each of these issues each entailed a different cost. Interdependence scholars further subdivided their discussions into intergovernmental relationships, supranational institutions, and the bargaining and opportunistic behavior which occurs within established relationships. Interdependence, in international relations theory, attaches importance to non-state actors in inter-state policy making and negotiations. The interdependence paradigm explained that economic transactions were exchanged between interested actors and that while these were transnational actors (in this case transnational firms) and not state actors that their actions also affected the integration process.
Interdependence has normally been defined as a condition; a measure of a singular or multiple relationships which may or may not be on going (Keohane and Nye 1975a: 367). According to Rosecrance and Stein (1973: 2), there are at least three different types of interdependence. First, interdependence suggests a relationship of interests such that if one nation’s position changes, other states will be affected by the change; second, the notion derived from economics that suggests interdependence is present when there is an increased national “sensitivity” to external economic developments; and third and finally, interdependence entails a relationship which is costly to break. Interdependence is also a measure of openness. Openness is a “multidimensional concept” when measured in economic terms, i.e., trade flows, labor and capital mobility and the liquidity value of money (price sensitivity of interest and exchange rates) (Tollison and Willett 1973: 259, note 10). The interdependent relationship is illustrated by sensitivity to factor price changes or vulnerability to policy changes, defined as some degree of mutual effect (Keohane and Nye 1975a: 367). In normal usage by economists, the concept of economic interdependence refers to the sensitivity of economic behavior in one country to developments in another, usually due to the sensitivity of economic transactions between or among nations to economic developments within each of them (Tollison and Willett 1973: 259). The degree of effect appears to be less stringent in the interdependence paradigm and economic integration theory because it stresses sensitivity to economic, social and political changes and not complete price equality or a unified institutional structure.
The interdependence paradigm recognizes that completely free markets are rarely possible and that the intervention of domestic-oriented policies of national governments into international relationships upsets market equilibrium over time. Interdependence is discussed in terms of some measure of transaction volume (e.g. communication, trade, etc.) (Waltz 1970; Puchala 1970; Rosecrance and Stein 1973; Katzenstein 1975; Krause and Nye 1975a; Frankel 1993), or macroeconomic policy coordination (Cooper 1972; Tollison and Willett 1973) as key factors promoting or retarding interdependent relationships. Transactions are dynamic processes. The positive and negative externalities of these increasingly frequent international exchanges are quickly transferred. The rate of international transactions vis-à-vis domestic income and GDP are measures of interdependence as well as integration. The increasingly complex linkages created by these transactions tied together more and more actors in different countries loosely defines integration as complex interdependence. Do increasing transactions, both in scope and in intensity, increase the complexity of the management of these relationships? Scholars differ among themselves as to the relative importance of functional tasks and transactions in the integration process. The questions raised include: 1) whether or not transaction approaches can carry research on regional integration beyond description and toward causal explanations is an open question (Puchala 1970: 733); and 2) is a high level of trade between two countries to be seen as a factor favoring further integration, or is it evidence that some integration has already occurred (Pentland 1973: 44); 2).
Our theoretical discussion suggests that the standard analysis of trade flows, as has been undertaken by researchers in international relations over the last decade, are not closely linked to the major theoretical concepts of economic integration and interdependence. An increase in the degree of harmonization of macroeconomic policies among the countries of an area can, by reducing the divergences in the area’s pattern of disturbances, be a potent factor in the degree of economic integration within an area (Tollison and Willett 1973: 269).
Functionalist analysts have accurately located the origins of international cooperation in realms of functional interdependence; they have pinpointed the significance of sector approaches; they have grasped the importance of non-governmental transnational actors (Puchala 1972: 273). 21 Functionalist integration scholars stressed the functional autonomy of sectors. Functional task-areas in international economics, communications, and science and technology, which the functionalist model stipulates to be immune from international politics, have in fact turned out to be the central issue-areas in the lively international politics of integration (Puchala 1972: 274). Wendt’s (1994: 389) constructivist interpretation of economic transactions and integration as an interactive process reiterates Balassa’s (1961: 16) proposal that integration sector by sector leads to the coordination of exchange rate, monetary and fiscal policies of states as the market expands. The external environmental factors affecting integration processes was the economic growth of other states.
An integration process promoted and supported by a growing number of interdependent relationships, as well as by the increasing size and structural power of non-state actors is a “market-led” process of integration. The scope of market integration is dependent on the type of economic sector. There is no single pattern of integration followed in each and every sector of economic activity (Tsoukalis 1991: 9). Sector-specific integration did not necessarily yield a formal inter-governmental process of integration. However, integration on a sector-by-sector basis required a continual adjustment of the balance of payments between countries (Balassa 1961). Supporters of a sectoral approach to integration contended that national governments were more inclined to make limited commitments with reasonably clear implications than to integrate all sectors at the same time (Balassa 1961: 15). In some cases, integrative processes develop out of what was sector-specific interdependence. The integrative effect of economic transactions locates integrative processes both above and below the regional level. Some economic sectors integration more intensively at the local or regional level as in transport cost-sensitive manufacturing and assembly processes, or at the global level in financial markets and telecommunication links. Economic sectors such as telecommunications, automobiles, pharmaceuticals, and financial and insurance services are also central to the state’s national interest. The size of these sectors, however, is determined by specific economies of scale. For example, the integration of the financial services and telecommunications sectors takes place at the global level; the integration of the manufacturing sector at the regional level; and the small-scale services sector (e.g., restaurants, housing, shopping, health care, etc.) and other service industries (e.g., local suppliers, parts and component sub-contractors, etc.) are integrated in domestic markets.
If we are to carry the discussion of integration and interdependence to propose that the accumulation of conditions of interdependence are indeed representative of long-term interests which support integration, we must ask the question: Do the integrative effects of interdependent relationships (i.e. consolidation of firms) effect power relations between states. Interdependence theory suggests that as interdependence grows, power shrinks as a factor in state relationships (Doran 1994: 260). Mutual dependence is the extent to which countries rely upon each other for goods and services that cannot easily be produced at home and is representative of a relationship that is difficult (costly) to break (Waltz 1970: 210).
We must be careful not to define interdependence entirely in terms of situations of evenly balanced mutual dependence. It is asymmetries in dependence that are most likely to provide sources of influence for actors in their dealings with one another. Less dependent actors can often use the interdependent relationship as a source of power in bargaining over an issue and perhaps affect other issues (Keohane and Nye 1977: 10).
If the relationship is costly to break then resilience of an interdependent relationship rests on the benefit derived from it. If the benefit or profitability of an interdependent relationship falls then the relationship can be easily broken or strains in the relationship will emerge. The realist analysis of Albert Hirschman (1969), Kenneth Waltz (1970; 1979) and Joseph Grieco (1996) refer to asymmetric economic interdependence and political influence. A basic insight found in their respective analyses of the political effects of asymmetrical interdependence is that if partner A in an inter-state relationship would sustain fewer losses than partner B in the event the relationship were terminated, then, other things being equal, partner A would enjoy greater influence over partner B than the reverse. 22
Power is inseparable from interdependence (Keohane and Nye 1977). Economic interdependence is a component of system structure, because it is an expression of the functional differentiation of units (Kaufman 1997: 180). 23 Interdependence is a structural phenomenon which affects the character of international organization. Analysis of patterns of vulnerability interdependence and asymmetries in those patterns should be a necessary element of sophisticated explanations of behavior in regional and other economic transactions (Keohane and Nye 1975a: 370). No provision, however, is made in the realist works for the relationship continuity in interdependence. The critical distinction to make is whether or not interdependent relationships shift away from conditions of sensitivity and vulnerability to one where structural power is exercised.
The vulnerability and sensitivity characteristics of interdependent relationships convey that interdependence is an inherently asymmetric relationship. Interdependent relationships are more or less asymmetrical depending on the characteristics of issue-areas and the attitudes and interests of elites, as well as on the aggregate levels of power of the states involved (Keohane and Nye 1975a: 367). Interdependence by no means implies equality. Interdependent relationships are defined by degrees of asymmetry. There appears to be a gap, however, between the type of interdependence that characterizes international relationships among industrialized countries and the type of interdependent relationships characterizing relationships between industrialized and developing countries. Interdependence theory has a weakness, that weakness is the concept of “asymmetric interdependence,” in other words, the alleged interdependence between states of unequal power (Doran 1994: 260). In the case that integration does not develop out of interdependent relationships, the integration process is more sporadic, not economically motivated and therefore less viable. At present, however, outward-oriented policies toward trade creation, export-led growth, and development of domestic industry via technology transfer and capital investment prevails.
6. Conclusion
Integration is an on-going process less subject to the gyrations of the sensitivity-vulnerability interdependence paradigm. Interdependence emerges in a secure international system as a differentiated process of individual relationships and the transactions between states. Integration is therefore, to some extent, a formal recognition of accumulated interdependent relationships. In political terms, integration is the more comprehensive and more enduring of the two. Integration is defined in economics, however, in much the same way as interdependence is defined in political science; the interconnectedness of interdependent relationships. A fully integrated economic area is one in which prices of all similar factors of production and goods and services within the area are equal. Hence, integration, i.e., the creation of one market is synonymous with perfect or complete interdependence.
The ebb and flow between interdependent relationships and integrative processes continues indefinitely in the international system. Integration and interdependence theories offer complementary perspectives to present-day inter-state relations as they did in the 1970s. Integration in regional contexts and levels of transactions present new issues for integration theorists. Integration as a process of peaceful organization of interstate relationships is a difficult process to analyze both theoretically and empirically. It can be argued that integration is an on-going process and the formal recognition of integration processes does not necessarily occur. Institutionalist approaches to studying peace are various and by no means an orderly progression of prescribed steps toward the federalist end of a supra-national state. The combined effect of economic activity and political institutions are the foundation of both interdependent relationships and integrative processes. Rising interdependence, as a function of economic growth establishes formative structures and processes, i.e., the interests of economic actors. Integration builds on a growing number of issues and stakeholders.
The pattern of institutional development, the overriding concern of political theorists, is a stumbling block for integration theory. In practical and theoretical terms, integration is an on-going process, subject to intervening political and economic variables. While functionalist theory cannot describe a process, it can provide a truism for the basis for cooperation that the provision of welfare needs is a sufficient basis for international security at some stage of the integration process. It is then to this theoretical base, built before the neo-functionalists branched off from the functionalist school that integration theory may return. The neo-functionalist integration theory and interdependence are American theoretical constructs arising from its national development experience. The discussion of integration theory has been modified, reflecting the increasing emphasis on domestic institutions, as a result of the internationalization of the state and constructivism. Interdependence, on the other hand, is often discussed in the context globalization of market processes. For economists, confident in the continued smooth operation of market processes, regional markets are an almost foregone conclusion. The more reflective political scientist wrestles with implications of these market processes on political systems and security, both domestic and international. A gap between the economist’s emphasis market size and the political scientists concern with military security persists in study of the economic aspects of security. The gap is likely to grow with the emergence of regional markets, and points to the strengthening of interdependence-led processes of integration.
An interdependence-to-integration causality is in direct contrast to the integration process in post-war Western Europe, where integration began as a political process founded upon formal inter-governmental cooperation and the establishment of institutional and regulatory frameworks, preceded economic interdependence. Integration builds on a growing number of issues and stakeholders. Integration is the expansion and stabilization of interdependent relationships, of which a key indicator is the expansion of stakeholder interests and increasing investment transactions. This type of integration may be described as ‘vested interdependence’ which adds a continuity feature not present in interdependent relationships. Where the number of interdependent relations has reached a critical mass, stakeholder concerns are addressed in policy decisions. Rising interdependence also establishes non-state organizational structures and processes across national borders. As the network of relationships expands it provides the incentive for policy cooperation, followed by the initiation of some type of formal integration process often between countries at different levels of economic development. Hence, integration is as much a process of constructing a network of relationships as it is one of establishing formal institutions.
The most comprehensive integration occurs among countries with strong security ties. Countries which share borders in particular have a strong incentive to maintain stable relationships with their neighbors. It is here where economic and political integration processes coincide. Global integration is only loosely tied to a discussion of security because of the contradiction between global and security in statist terms. In functional and economic welfare terms, however, the distinction between global and security is not so clear. The extent to which they do depends on the geographical scope of the economic sector concerned, as well as the state’s foreign policy. Economic integration, often described as a “market-led” process, is founded on a stable international system and proceeds by a multiplication of interdependent relationships in often geographically discontinuous economic sectors in global markets. The extension of economic integration to a formal political process is due to the security concerns of participating states. The extent of the state’s military security relationships is reflected in the geographic scope of its economic sectors. And, the security provided by integration continues to have an economic basis.
Economic incentives for regional integration may include the need for technology intensive industries such as aeronautics or electronics, or the desire to develop domestic corporations to a level where they may be competitive with large multinational firms from other countries. Functionalist theory, on the other hand, emphasizes that material welfare be provided by economic growth, i.e., interdependence and market integration. The focus of integration at least initially, and even between countries with wide gaps in structural power and levels of GDP, is on the functionalist aspects of integration. It is imperative to critically assess the political ‘naiveté’ of the functionalist approaches to peace which nurtures the assumption that integrated relationship may become so binding that welfare issues may never arise in a region-wide framework. This type of integration differs from integration among industrialized countries because it is potentially unidirectional in most, if not all, aspects of the process. A ‘structure of interdependence’ which outlines specific economic interests promoting integration is problematical. The integration of unequal powers, however, is possible. And, mutual dependence and the structural aspects of policy-sensitivity and policy framework-vulnerability of interdependence may include integrated relationships which may be unstable and asymmetrically interdependent.
Integration is a process of inter-state cooperation to maintain systemic peace which emerges from a general optimism about the economic benefits to be derived under the international system no matter how fraught it is with competing interests or relative structural weaknesses. Economic integration, often described as a “market-led” process, is founded on a stable international system and proceeds by a multiplication of interdependent relationships in economic sectors which transcend national and even regional borders. Markets are integrated by repeated transactions. Transaction-led integration is the product of the multiplication of international relationships, a function of the process of economic growth and expanding international relationships. Through the process of economic growth and the outward expansion of the production possibilities frontier, international transactions grow in proportion to the output of the domestic economy. Hence, individual countries become increasingly dependent on external markets and transnational organizations. Over time, the effect of the process of economic growth and development makes the question of market interdependence, economic integration and ever more salient. A key consideration is the integrative effect of organizational networks, particularly the consolidation of firms. Transactions are fundamental to networks among transnational organizations and economic processes, and as we have seen before, in generating a political community. In contrast, where transactions between economic and political actors are minimal, autarky and isolation prevail.
The causality between interdependence and integration is mutual in the process of economic growth and development. A growing number of interdependent relationships over time lead the way toward economic integration. As the network of cooperative relationships increases, providing the incentive for policy cooperation which is then followed by the initiation of a formal integration process between geographically proximate states or regions. The key distinguishing feature of investment relationships is that integration is a process, which grows out of an increasing number of interdependent relationships between countries. Policy integration is also promoted by interdependent, time-based investment relationships. This is particularly true of countries undergoing economic development and growing international relationships. Outside the traditional context of the regional integration integrative processes are: 1) occurring among countries with different levels of power; 2) on-going with or without a formal institutional structure; 3) not limited to physical borders; and, 4) configure regions at the sub-national, as well as at the super-national level.
Integration is a process on which all parties are in agreement. The implication is that integration, insofar as it is a peaceful process, occurs among countries of roughly equivalent economic and political size, or with the assurance that the process equitably serves both parties in areas of inequality. Considering regional integration outside the context of the industrialized countries of Western Europe presents a whole new menu of issues. In North America, Central America, South America, East Asia — north and south, South Asia, Central Asia, Central Europe and the former Soviet states at various times have found regional integration to be a mechanism to address a set of common problems, such as maintaining international security and domestic stability, and a step toward cementing transnational economic relationships particularly through investment. The preeminence of political factors over economic factors, or vice versa, affects how integrative processes emerge. Integrated relationships need not be institutionalized. But institutionalization may occur ex post to the development of an integrated relationship. In any case, the causal relationship between interdependence and integration is reversed in an integration paradigm among states at different levels of development. While the more powerful state in the integration process may have no pre-determined plans to integrate the less powerful state in its entirety, the compromise of both domestic and foreign policy decision-making of the smaller state and the adjustment process that state faces points to a different set of uncertainties. The implication is that an integration process, once set in motion, is irreversible and there is no guarantee that the end result will not be the incorporation, whether officially or de facto, of all or part of the less-developed country into the more powerful state. If the integrated relationship is not recognized by a broad-based political consensus as mutually beneficial and instead is disproportionately bilateral, the integration process will be subject to the same fits and starts as characterizes the interdependence paradigm.
What implications do the newly emerging issue-areas pose for integration theory? First and most importantly, one must recognize that an integration process has no uniform definition, nor a prescribed outcome, not even the avoidance of violent conflict. The concept of integration may provide a theoretical framework, but the organizational characteristics of the process vary widely. An understanding of the complexity of international relations, and, the diffusion of power is essential to understanding if integrative processes promote international cooperation and security. The theoretical survey emphasizes that integration is not limited to one interpretation or a specific region. This points to a multiplicity of sectors and levels of analysis in the study of integration and interdependent processes. What is of interest is not only to compare the organizational parameters of integration and interdependence under varying circumstances, but also, within a single, loosely defined framework, to describe integrated relationships to reduce risk. The security aspects of integration that have to do with binding as well as on-going interdependent relationships are an important factor to consider given the changing issue parameters of regionalism.
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Endnotes
*: Prepared for presentation at the 40th Annual International Studies Association Convention, Washington DC, USA; 16–20 February 1999. Convention theme: One Field, Many Perspectives: Building Foundations for Dialogue, panel (WB21) theme: “Political and Economic Forces of Regionalism.” Convention proceedings published by Columbia International Affairs Online (CIAO)(www.ciaonet.org). Back.
Note 1: Nye was drawing a comparison between the European integration and Latin American integration processes. His question was directed to the conclusion of Haas and Schmitter in “Economics and Differential Patterns of Political Integration: Projections about Unity in Latin America,” International Organization, vol. 18, no. 4 (1964): 705–737. Haas and Schmitter proposed that in Latin America increasing interdependence was sufficient to support political institutions. Back.
Note 2: Andrew Moravcsik, “Negotiating the Single European Act,” in Hoffmann and Keohane 1991: 75, quotation attributed to Robert Keohane and Stanley Hoffmann, “European Integration,” unpublished manuscript, Harvard University, November 1989. Back.
Note 3: Charles Lipson, “Standard Operating Procedures and U.S. National Security,” in Henry Bienen, ed., Power, Economics and Security: The United States and Japan in Focus, Boulder: Westview Press, 1992: 174, 181. Back.
Note 4: Tsoukalis (1991: 16) notes that two decades later the two industries would have been among the least likely candidates to be targeted in the first steps towards the recovery of industrialized economies. Back.
Note 5: Moravcsik in Keohane and Hoffmann 1991: 67. Back.
Note 6: Leon Lindberg, The Political Dynamics of European Economic Integration, Stanford CA: Stanford University Press, 1963: 109, in Nye 1971: 24. Back.
Note 7: Pentland 1973: 132, 133, with reference to Uwe W. Kitzinger, The Politics and Economics of European Integration: Britain, Europe and the United States, New York: Praeger, 1963: 18. Back.
Note 8: Wayne Sandholtz, “ESPRIT and the Politics of International Collective Action,” Journal of Common Studies, vol. 30, no. 1 (1992): 1–21 in Wyatt-Walter 1998: 148. Back.
Note 9: Morton Kaplin, System and Process in International Politics, New York, John Wiley, 1957, in Pentland 1973: 39–40. Back.
Note 10: Ernst B. Haas, Beyond the Nation-State: Functionalism and International Organization, Stanford University Press, 1964, in Keohane and Nye 1975a: 380. Back.
Note 11: David Mitrany, “The Prospect of Integration: Federal or Functional?” in Nye 1968b: 73. Back.
Note 12: Robert O. Keohane and Joseph S. Nye, Power and Interdependence, 2nd edition, 1989: 251, in Hurrell 1995: 54. Back.
Note 13: Nye 1968b: 380, with reference to Mitrany[1943] 1966. Back.
Note 14: Carl J. Friedrich, “New Tendencies in Federal Theory and Practice,” in Pentland: 151. Back.
Note 15: See Richard E. Doner, “Limits of State Strength: Toward an Institutionalist View of Economic Development,” World Politics, vol. 44, 1992, and, Stephan Haggard, Pathways from the Periphery: The Politics of Growth in the Newly Industrializing Countries, Ithaca and London: Cornell University Press, 1990. Back.
Note 16: E. H. Carr, Nationalism and After, London: Macmillan, 1954: 117. Back.
Note 17: Note: This interpretation of economic integration is similar to the neofunctionalist interpretation of integration, see Pentland 1973: 121. Back.
Note 18: Herbert Giersch, “Economic Union between Nations and the Location of Industries,” Review of Economic Studies, no. 2, 1949–50 in Balassa 1961: 192. Back.
Note 19: As early as 1970, Hymer and Rowthorn (1970: 59) pointed to a European policy to create giant European corporations. Back.
Note 20: I am indebted to Susan Strange for the description of interdependence as a “vague and woolly notion.” Back.
Note 21: Stanley Hoffmann, “Obstinate or Obsolete? The Fate of the Nation-State and the Case of Western Europe,” Daedalus, XCV (Summer 1966): 862–915, in Morse 1970: 377, note 9. Back.
Note 22: Albert O. Hirschman, National Power and the Structure of Foreign Trade, Berkeley: University of California Press, 1969; Waltz 1970; Waltz 1979, noted in Grieco 1996: 7. Back.
Note 23: See also Buzan, Barry and Charles Jones and Richard Little, The Logic of Anarchy: Neorealism to Structural Realism, New York: Columbia University Press, 1993: 44; Helen Milner, “The Anarchy in International Relations Theory: A Critique,” in Neorealism and Neoliberalism: The Contemporary Debate, edited by David A. Baldwin, New York: Columbia University Press, 1993: 143–69.
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