CIAO DATE: 8/00
Economic Relations and their IOs
University of Maryland, Department of Government and Politics
International Studies Association
41st Annual Convention
Los Angeles, CA
March 14-18, 2000
Today an economic web that includes both financial and trade strands binds states together. Organizations that vary from the G7 to the WTO influence the shape and strength of that web. The issues involved vary from currency crises to trade protection. As the economic web has bound countries closer together, the issue of sovereignty in economic affairs has become an increasingly important one. To what extent can IOs tell individual states how to conduct their economic affairs? To what extent does the international economy dictate the economic behavior of domestic governments? To what extent must states consider the effects of their actions on the economies of other states because of the feedback effects of the economic web? These questions are critical for todays economic IOs and for todays economies. This paper will examine how the current IO literature looks at these issues. In addition, this paper will look at how the literature from negotiation and mediation studies might inform the IO study of how organizations can mediate the competing demands of different states and different regions.
The title of this panel, "International Organization: Where Are We? Where Do We Need To Go?" is certainly pretentious enough for any academic. However, this is a good time to reassess where the study of international organization is and what the challenges are for the future study of international organizations. Slightly over a decade has passed since the "fall of communism". Therefore, we have had some time to see in what direction that change will push international events. There are two major trends stemming from the "fall of communism" that affect the study of international organizations with respect to international trade and finance. One is the set of major changes in financial and trade flows. The other is the changing conception of sovereignty and self-determination and the changing goals that we have for sovereign and/or self-determined nations. "The internet revolution" is well on its way to changing not only the nature of business at a variety of different levels, but also the way in which individuals and communities respond to economic events and business practices. In addition, there is an ever-increasing interest in the concepts of global governance and civil society. To the extent that global governance and civil society are on the increase, they will certainly affect the nature of international organizations and their effects on economic events. The time is ripe to examine the effects of these trends.
This paper has three major sections. They address the following three topics. First, what are the important issues in international trade and finance that the global community and individual nations will face in the next decade? In this section, I will examine the nature of the economic web that binds nations together. It is important to understand the economic forces and trends that exist as well as the institutions and organizations that influence the strength and nature of the strands of that web. I will attempt to organize some of this discussion along the traditional trade vs. finance lines. However, the increasing complexity of the world economic web draws lines across these boundaries. In this section, I will point out some of the critical policy decisions that foreign policy decision-makers face and what tools they will need to help them make decisions.
Second, what does the current state of the art in the study of international organizations have to offer to aid us in analyzing and responding to these issues? Here, I will examine some of the recent work in the study of international organizations and the methods and theories that are used. I will discuss both the advantages and disadvantages of these methods and theories. I will also tie this into the previous discussion of what kind of tools foreign policy decision-makers need.
Third, what can we add or change in the study of international organizations to make it a more useful perspective from which to understand the issues at hand? This section will take a hard look at the disadvantages described in the previous section and the needs of foreign policy decision-makers. One obvious area for perusal is the lack of experimental methods in the study of international organizations. I will also discuss the contributions from the negotiation and mediation literature that might be useful in the study of international organizations.
In the concluding section, I will suggest not only what lines of research might be fruitful and what hypotheses one might want to test, but also what kinds of collaboration with foreign policy decision-makers would be of use to both academics and practitioners.
What are the important issues in international trade and finance that the global community and individual nations will face in the next decade?
This section addresses the question of what are the important issues in international trade and finance that the global community and individual nations will face in the next decade. I have suggested that there is a web of economic connections between nations. The larger this web is the more opportunities for cooperation and coordination it provides. International institutions can play an important part in fostering both cooperation and coordination. In doing so, international institutions can play a major role in assisting foreign policy decision-makers in making critical foreign policy decisions as these decisions center around decisions of whether and how to interact with other entities in the international arena. Foreign policy decision makers must decide which of four paths to follow: 1) conflict, 2) neutral go it alone, 3) coordination, 4) cooperation. In order to understand where international institutions can make the greatest impact in this effort to foster cooperation and coordination, one needs to understand where the best opportunities are for cooperation and coordination. To that end, I will examine the economic forces and trends and the institutions and organizations that exist today. To some extent, one can organize these phenomena along the traditional lines of trade and finance. However, it is increasingly the case that financial events such as changes in currency valuations affect what happens in the trade arena and events in the trade arena affect currency valuations and debt structures.
Shape and size of the web
What has been happening to the size of the web of economic ties between nations:
The size of the web has been increasing. That is the number of countries that have economies with a significant degree of integration with the international economy has been increasing. The strength of the web has also been increasing. Where before countries would have limited financial ties or trade in one or two sectors, they now have trade in many sectors and increased financial ties. A cable made up of many strands may have replaced a single strand.
The shape of the web has changed as well. The level of economic integration is not smooth across the world. The European Union (EU), North American Free Trade Agreement (NAFTA), European Free Trade Association, Asia Pacific Economic Cooperation (APEC), and Australia-New Zealand Trade Agreement (ANZCERTA) all focus economic integration in different economic areas. Institutions such as the General Agreement on Tariffs and Trade (GATT), World Trade Organization (WTO), the International Monetary Fund (IMF), and the World Bank brink some overarching structure to trade and financial arrangements, but do not include all countries on an equal footing. The economic web does not have one center but rather several focal points of varying strength and then some institutions that try to create broader frameworks.
Increased trade in goods and services has come about with a reduction in traditional import barriers. However, the increase in trade accompanied by the reduction in trade barriers and an increase in financial openness has brought the area of competition to labor, fixed capital, and environmental issues. Mobile capital can now search the globe for areas with low labor costs, low fixed capital costs, and lax environmental regulation. This was not possible in the days of import barriers and relatively closed capital markets.
In sectors as diverse as software development and clothing manufacturing, labor from industrialized countries must compete with much cheaper labor from newly industrialized and developing countries. This leaves policy makers in a significant dilemma. The consumer sector wants cheap products, which requires either cheap labor or automation. The labor sector wants high wage/benefit packages. The fixed capital sector wants retention of production so that returns on fixed capital remain as high as possible and this often points to wage reduction. One frequent policy response to this dilemma has been for agents of high wage nations to try to increase wage/benefit packages for workers in low wage nations. Obviously, the fixed capital sector and consumer sectors worldwide would prefer a different solution. This means that there is a definite opportunity for cooperation here.
Similar opportunities for cooperation exist over environmental regulation, and fixed capital costs. When manufacturing concerns face costly environmental regulation, building regulation, land use regulation, high taxation rates etc., labor and capital sectors presumably would like to reduce those costs. However, consumers of the environment, safety and local social programs would prefer to keep those costs. This provides more opportunities for cooperation.
While the above discussion applies to trade in goods, there are other opportunities for cooperation and coordination in trade of services. Trade in services include, insurance, information management, and business and management consulting. All of these sectors require a stable legal structure under which state or international authorities can enforce agreements. Here there are substantial gains from coordination over the structure of the legal system. There are also some gains from cooperation. These occur where legal traditions differ or there are differences in social costs to different kinds of arrangements.
Opportunities for cooperation and coordination appear in the area of international finance as well as international trade. There are thee main areas where such opportunities occur. They are debt, currency valuation, and financial markets (stocks, bonds, derivatives etc.). There are continuing discussions over possible debt relief for developing nations as well as the terms and conditions of new lending to developing nations. Here cooperation is possible between debtors who cannot afford to repay loans under the current terms and creditors who cannot afford to take a complete loss. Possible creditors and debtors also need to coordinate about future lending - amounts, rates and repayment terms as well as how the money is to be used.
In the area of currency valuation, the major issue is what kind of exchange rate regime should a country exchange in and if that regime is not a floating exchange rate regime what country or countries should it enter into a regime with. The possible cooperative arrangements here are staggering in their variety, as countries must consider not only the tradeoffs with other nations, but also tradeoffs between different sectors of their own economies. Barry Eichengreen in "International Monetary Arrangements for the 21st Century (1994) suggests that the United States, Germany, and Japan will gain the most by maintaining floating exchange rates, because stabilizing their exchange rates would create significant problems in their abilities to meet domestic economic objectives. Eichengreen however suggests that there are significant areas for cooperative gains in two exchange rate regimes one centered on Germany and the other centered on Japan and that these exchange rate regimes will provide the largest gains if they actually involve monetary unification.
Financial markets are an additional area ripe for cooperation among nations. Today we see a variety of different stock and bond markets in different countries. The level of coordination between these different markets is not high today. However, the need for increasing coordination is on the horizon. The increase in after hours trading in the United States is beginning to cause price dislocations and there are apparent losses due to inefficient or non-clearing markets within the after hours market. While some markets now have automatic closure mechanisms should certain trading patterns occur these mechanisms are not in place in all major markets and they are not the same in all major markets. This can cause losses due to lack of coordination if some markets close when other markets remain open. Gains from cooperation and coordination are possible. However, policy makers must realize the dual nature of the problem. For governments the problem is mostly one of coordination i.e. choosing a common set of rules and practices. However, for the individual stock and bond markets there are issues of cooperation and it is possible that these cooperation issues will extend to the major corporations and bond issuers whose stocks and bonds are traded in these markets.
In addition to the opportunities for cooperation and coordination discussed above there are additional opportunities that arise because of changes in technology and changes in the world political structure. The movement of communist economies to market economies provides a wide array of opportunities for cooperation and coordination that were not available before. These countries have different needs in terms of both trade and finance than either traditional developing or newly industrialized countries. They have many of the problems of the industrialized nations in terms of pollution and outdated infrastructure, but few of the domestic institutions to deal with these problems. Special arrangements may be necessary to facilitate the full integration of these countries into the international economy.
In my discussion above of the opportunities for cooperation and coordination, I focused on the parties directly affected by the issues at hand. However, changes in our conception of sovereignty and the importance of civil society bring other issues to the table. Economic, social, and military intervention by individual nations and multilateral institutions has brought the question of sovereignty to the forefront of international relations. When is a nation sovereign? What kinds of compromises limit sovereignty? These kinds of questions are on the minds of many leaders and bring a certain level of wariness when discussing possible cooperation. International institutions may be able to use this to their advantage if they can convince leaders that they offer protection from the efforts of others to dictate to the states even if the price is some small limitation on sovereignty.
The increasing importance of civil society as a political force also changes the nature of compromise and coordination. Civil society can be a force that crosses boarders and therefore changes the dynamics between different groups trying to reach agreement in a particular area. For example, I mentioned above the possibility of cooperation between different groups when labor practices, wages, and benefits differed between nations. The presence of a civil society that suggests that there are particular gains for the community and forces the consideration of those gains in addition to the gains available for individual sectors will complicate these negotiations. Civil society in such a case essentially becomes an additional party to the negotiation and a quick perusal of the negotiation literature certainly suggests that the larger the number of parties at a negotiation, the more difficult a negotiation can become.
What does the current state of the art in the study of international organizations have to offer to aid us in analyzing and responding to these issues?
Here, I will examine some of the recent work in the study of international organizations and the theories and methods that are used. I will discuss both the advantages and disadvantages of these theories and methods. I will also tie this into the previous discussion of the problems that foreign policy decision-makers face.
Surveying all of the literature in the area of international organizations in the last few years would be a daunting task. I think however that the journal International Organization provides a relatively representative sample. Therefore, I have reviewed the articles published in the last two years in the journal International Organization. I find that the most common methods include case studies, comparisons of 2-4 cases and some small n studies. In the middle ground, I find methods such as modeling and large n studies. Modeling for the most part seemed to be straightforward regression techniques or game-theoretic models. I saw no examples of experimental methods.
Does it matter to the foreign policy decision-maker what methods we use to study international organizations? The answer to this question is no as long as the results of our studies give us generalizable information about international organizations. It seems to me that foreign policy decision-makers have several questions that they need answers to.
If the results of our studies are sufficiently robust and generalizable that we can provide reliable answers to these questions, then it seems to me that the choice of method is irrelevant.
Does it matter to scholars of international organizations what methods we use to study international organizations? Again, I would say that the answer is no so long as the methods that we use provide generalizable answers to the questions that we consider important. These questions are obviously somewhat different than those asked by foreign policy decision-makers, but follow along similar lines.
Theories about international organizations come from a number of different traditions. One of these traditions has its roots in economic theories that discuss international organizations as responses to barriers to Pareto efficiency such as incomplete information and transaction costs. In this tradition, members choose to be part of institutions to take advantage of gains to welfare that are not possible without the benefits of the institution. Presumably, the gains to welfare from the institution outweigh any costs that the institutions impose on their members. This approach seems to be most adept at explaining when institutions will be created and perhaps something about their initial structure.
Another tradition is a constructivist approach drawing upon sociological and bureaucratic institutionalist approaches. This tradition suggests that organizations create social knowledge, create actors with responsibilities, roles, and authority. They give these actors and their work meaning. This approach is particularly adept at explaining how organizations evolve and why that evolution is not always adaptive to the external environment. This approach also explains behavior of international organizations as independent actors as opposed to agents of states.
Since the study of international organizations is generally within the purview of political science, it is notable that neither of the above traditions mentions politics. In "The New Wave of Regionalism", Mansfield and Milner 1 put forward a theory of institutional choice that includes not only the political power of different domestic political actors but also the political power of other actors in the international environment. Richards has a similar approach in "Regulating International Aviation Markets" 2 . His approach has a greater emphasis on domestic politics and less on the international political environment.
None of these three theoretical approaches by itself seems to be able to put forward a convincing overarching explanation for a coherent set of answers to the questions posed above. Yet, this is exactly what we should be looking for. A comprehensive theory of organizations should be able to meld together the contributions of different fields into a theory, which would have a great many observable implications. Why should we accept an incoherent body of theory that provides robust generalizable results only for certain questions? We as scholars of international organizations should be able to develop a coherent theory that clearly explains when the different contributions of other fields and sub-fields will be most important. Such a theory does not seem to be in evidence nor does there seem to be much effort to create a coherent overarching theory of international organizations.
Early in this paper, I described the international economic environment as an increasingly complex web of economic interactions. I suggested that increasing economic integrations leads to an increasingly large number of opportunities for cooperation and coordination. The problem for foreign policy decision-makers is deciding when each one of these "opportunities" presents itself whether to follow a path of conflict, go it alone, coordination, or cooperation. Institutions are the mechanism for cooperation and/or coordination. Foreign policy decision-makers must be able to decide when to use institutions, when to create institutions, how to create and/or change institutions, and how to choose between existing institutions.
They need a set of answers or recommendations from a coherent body of theory that can provide powerful explanations not only of institutional choice and institutional creation, but also of what happens once the institution is in place how does the institution change and when does it become an independent actor rather than an agent of its members. The costs of creating or joining an institution may be high and foreign policy decision-makers must have a way of estimating the potential gains not only for the solution of some immediate problem but also for the long term.
Optimal choices concerning international institutions are complex and depend on many different factors. Foreign policy decision-makers must keep their domestic constituencies satisfied. They must also continue to act within an international political environment where they will need the cooperation of other actors in the future and cannot afford to act against the interests of everyone all the time or perhaps even against very powerful actors even once. They must also consider the potential gains to welfare from the cooperation and/or coordination possible through institutions. In addition to these not insignificant considerations, foreign policy decision makers must consider the long-term consequences of creating or joining institutions. What happens if the institution becomes an independent actor? When are international organizations likely to become pathological? When are the benefits of an institution likely to be long lasting?
What can we add or change in the study of international organizations to make it a more useful perspective from which to understand the issues at hand?
If you have read the previous sections, there are at least two obvious things that I will discuss in this section. One obvious area for perusal is the lack of experimental methods in the study of international organizations. The other obvious topic is the need for a comprehensive theory. There are two other areas for discussion in this section. One is the need to understand the ability of institutions to negotiate, mediate, and control the decision-making environment. The other is the need to understand the role of the foreign policy decision-maker.
I noted earlier that the experimental methodology appears to be absent from the literature on international organizations. I know that some will argue about the usefulness of experiments in the study of international organizations. However, at some very basic level organizations are things that constrain human behavior. In that vein, I think that it is a very useful technique to examine what behavior is like in a situation with organizations and without and with different kinds of organizations. The experimental tool allows us to do that. In addition, it can be a very interesting exercise to present individuals with a problem and see what kind of organization they create to solve that problem. One can continue such an experiment by asking the subjects to solve the problem with that organization and then ask them how they would like to change the organization. Then repeat as necessary until they are satisfied with the organization. Changing the environment in strategic ways can also enrich such a procedure.
In the past, human subject simulations of problems of international organization were difficult to set up and the data gathering from such efforts was difficult at best. Several technological advances have now made experiments much easier to conduct and have automated the data gathering process. Researchers can set up the simulation environment on a computer now instead of relying on paper materials and trainer presentations. This ensures a high degree of similarity across all subjects in terms of preparation and simulation environment. In addition, the simulation environment can now be run over the World Wide Web. The ability to do so potentially resolves at least two problems. One is the problem of using only college students as subjects, since it is possible to set up your simulation as a game, which web surfers will find and play. The other is the problem of getting enough simulations run that there is a high enough n to be able to use commonly accepted statistical techniques in their analysis. Being able to use subjects from around the world instead of just at your university can alleviate this problem. Finally, yet importantly the use of the computer environment for the simulation automates the data-gathering task. One does not need observers, video or audio tape, if the computer records all communications, actions, and data queries. An added benefit here is that since all the data is in an electronic format it is very easy to code the data. It is also very easy to import into any kind of statistical package or other program for manipulation.
One of the benefits of the experimental method is that if one has a theory that has many observable implications, it is generally relatively easy to create an experimental design that makes it possible to collect data on all of those observable implications. Experiments should be designed to test as many hypotheses generated from a coherent theory as possible. Ones theoretical model will suggest that one should see a certain pattern in the results if the hypotheses are supported. It is of course possible to compare the pattern of the results with those expected from a variety of different models and from there draw conclusions about which model best fits the experimental data. I think that the questions of level of rigor involved with the experimental method have to do with the validity of experiments as a tool in international relations scholarship. This is generally a question of the generalizability of results generated with non-practitioners for practitioners.
Perhaps I spend too much time reading about physics and things like unified field theory. However, I find the idea of having a unified theory of international organizations to be very attractive. I have no doubt that constructivist approaches, political approaches, and economics based approaches all have things to offer the study of international organizations. It is not my wish to downplay those contributions. However, I think that we apply them to the study of international organizations in a very piecemeal fashion with very little thought to understanding how they interact with each other and when the effects explained by one carry more weight than others.
Some authors seem to make the claim that the economics based theories are best at explaining the creation of institutions. The argument is that if there are no welfare gains to be had from cooperation or coordination, then states will not create institutions. Now this seems to be fairly straightforward on the surface, but if we think about it a little bit more deeply we may come to the following observation. States are institutions themselves and are also composed of institutions. In addition, new international institutions will be created not in a vacuum but in a environment full of existing international institutions. Now if the constructivist approach is better at explaining the behavior of extant institutions, then shouldnt we use this theory to help explain how the behavior of extant institutions affects the creation of new institutions? Let me complicate matters further by suggesting that the impact of these domestic and international institutions will in itself be impacted by the political structures and actors inherent in both the domestic and the international environment. We need a coherent way of thinking about the interactions of these different variables.
Sometimes authors make the claim that the constructivist approach is best at explaining the behavior of institutions. Why is it that the welfare gains that were powerful enough to explain the creation of the institution are less important when trying to explain the behavior of the institution? Why wouldnt it be useful to suggest that the structure of the welfare gains problem has changed because there is now an additional actor (the new institution) whose welfare is affected? When does the institution become a full-fledged actor in the constructivist approach? Is there some development curve during which the welfare gains problem changes or becomes less important? Once the institution becomes an independent actor to some degree and is no longer fully the agent of its members it still must act in the same international environment with other international actors and the political environment will certainly affect its effectiveness if not its behavior.
Political scientists frequently borrow theoretical and methodological tools from other disciplines or even from other sub-fields within political science. There is nothing wrong with this, but we must remember to integrate them fully into a theory of our own and not use them piecemeal in ways that to not generate a robust and generalizable understanding of the subject at hand.
Negotiation, Mediation, and Controlling the Decision Making Environment
One element that I find distressingly absent in research about international organizations is their role as negotiators and/or mediators. No matter what theoretical approach we bring to the study of international organizations, they act as mediators between different parties and as negotiators in disputes. In addition to their role as mediator or negotiator, institutions also frequently have substantial influence or control over the decision-making environment.
If we see an international organization as a negotiator, then we should think about how the structure of the international organization helps or hinders it in this capacity. Does the structure help the negotiator seem credible? Is the negotiator involved in two level games? Is the organization sufficiently accepted in the international community or by domestic communities to be perceived as actor to be negotiated with?
If we see an international organization as a mediator between different actors in the international community, then we should think about how the structure of the international organization helps or hinders it in this capacity. Do other actors perceive the international organization as sufficiently unbiased by both sides to be useful as a mediator? What kinds of institutional structure lead to effective mediation?
International organizations can also do much to control the situational variables that describe the environment in which a decision-maker decides. Astorino_Courtois (1998) 3 presents evidence that decision-maker behavior is much more predictable in situations with a high degree of structural constraint and that in these situations individual difference variables do not have as much influence on the decision or decision-making procedure. This indicates that the ability of international organizations to structure the decision-making environment is an important one and that it can lead to more predictable decision-making. The better we can predict decision-making the more likely we are to be able to effect it in desirable ways.
Understanding the Decision Maker
Ultimately, an individual or perhaps group of individuals makes decisions about whether to join or create institutions and individuals in the institution make decisions about what the institution will do. Thus, the role of decision makers and decision-making processes (both cognitive and bureaucratic) are important in our understanding of international organizations (their creation, use, behavior, and effectiveness).
I have suggested above that international organizations have the ability to control the situational variables that affect decision-making and that it may be possible for them to do so in a way that lessens the impact of individual difference variables on decision-making outcomes and processes. However, it is undoubtedly the case that individual difference variables will continue to make a difference in some cases of decisions about the creation, use, and actions of international organizations. When individuals are chosen or appointed to decision-making posts it is important to consider their characteristics that are likely to affect the way in which they make decisions. Such characteristics include but are not limited to reaction to stress, susceptibility to groupthink, susceptibility to framing effects, operational code beliefs, susceptibility to misperception, cognitive complexity, level of training, images of self and opponents, need for power, distrust of others, degree of nationalism, and belief in ability to control events. Certainly not all international organizations are structured in such a way that individuals have a great deal of influence over the actions of the organization. However some are structured so that individuals do influence action and in those cases, we should be able to integrate the effects of individual difference variables in our explanations of events.
In this section, I want to discuss three topics lines of future research, potential hypotheses, and the potential for useful collaboration between academics and practitioners.
Lines of research
There are three distinct lines of research that I think can be fruitfully pursued in the study of international organizations. One is the impact of individual decision makers on the use, creation, behavior, and effectiveness of international organization. The second is the impact of international organizations as negotiators, mediators, and controllers of the decision-making environment. The third is a line of research that seeks to integrate the theoretical contributions of these two lines of research with the three traditions (economics, constructivist, political) mentioned before.
While there are many different methods that could be used in these lines of research, I would like to see an increase in the use of experimental methods for reasons described above. I would also like to suggest that computer modeling or simulation of international organizations could be a fruitful methodological avenue.
In the previous sections, I have asked a number of questions in a rhetorical fashion and I could certainly list potential hypotheses for each one. However, since I have been pushing the importance of a comprehensive or unified theory of international organizations I will concentrate here on the issue of the changing level of importance for welfare gains vs. the ability of an international organization to act on its own as opposed to acting as the agent of its members. I think that we as international organization scholars need to develop hypotheses about the actorness vs. agentness of an organization and perhaps understand the circumstances in which organizations are perceived more as actors than as agents. This would be a step towards unifying the contributions of economics based and constructivist approaches to the study of international organizations.
I think that there are a number of opportunities for collaboration between practitioners and academics in the study of international organizations. Academics could benefit from discussions with practitioners about what questions they have and what advice they need. The use of experimental and simulation methods in the study of international organizations provides the opportunities for collaboration in the design of experiments and simulations and in the use of practitioners or practitioner-trainees as subjects. We as academics should not forget that although we are not in the business of answering the question of what should happen, we are in the business of making a useful contribution to the understanding of the world around us. The more we collaborate with the people who would make use of our contributions the more likely it is that they will be actually useful.