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Reginald Bauer
The Illusions of Anarchy and Cooperation
Grieco, a realist, contends that realism is a more practical and reliable model for
engaging in international relations than liberal institutionalism. While I would have to
disagree with Grieco’s assessment, there is also a critical shortcoming that neo-liberalism
shares with realism, namely the lack in transparency of intentions by other nation-states.
Whereas realists and neo-liberalists agree on the point that cheating can be a
major barrier to international cooperation, Grieco suggests that realists differ from neoliberalists in one important aspect: realists understand another important barrier to
international relations and that is the state’s concern about relative gains. While neoliberalists overemphasize the importance of absolute gains, realists propose that
participants in negotiation with fellow participants worry that one or more of them might
gain more from cooperation. A state might leave in the middle of a series of negotiations
due to the greater gains that another state might acquire.
“Realism’s identification of the relative gains problem for cooperation is based on its insight that
states in anarchy fear for their survival as independent actors. According to realists, states worry
that today’s friend may be tomorrow’s enemy in war, and fear that achievements of joint gains that
advantage a friend in the present might produce a more dangerous potential foe in the future”
(487).
What exactly is realism? Realism asserts the way the world is, or rather world
politics is a geopolitical struggle among sovereign states in an international system of
anarchy or absence of a world government in which states compete in the name of
national interest.
“For realists, international anarchy fosters competition and conflict among states and inhibits their
willingness to cooperate even when they share common interests. Realist theory also argues that
international institutions are unable to mitigate anarchy’s constraining effects on inter-state
cooperation” (485).
The exaggerated optimistic liberalism spanning from the 1940s into the 1970s
“argued that international institutions can help states cooperate” (486). While these
liberalists completely rejected the realist’s view of the anarchic nature of geopolitics, by
the 1980s a new form of liberalism took hold, namely neo-liberal institutionalism which
adopted a major idea of the realist paradigm, namely “that anarchy impedes the
achievement of international cooperation”, while retaining its own argument “that realism
overemphasizes conflict and underestimates the capacities of international institutions to
promote cooperation” (486). In other words, neo-liberal institutionalism accepts the
realist’s depiction of the world; where it differs is on the question of the immutability of
the present condition and that one should work to change the current arrangements. Neoliberalists argue “even if the realists are correct in believing that anarchy constrains the
willingness of states to cooperate, states nevertheless can work together and can do so
especially with the assistance of international institutions” (486).
Grieco identifies and emphasizes conflict and competition as the most
comprehensive way of understanding the problems of international relations. However,
the neo-liberalist does have valid rebuttals. Let us compare the schools of thought in
depth. What is the paradigm of each one? Let (R) stand for realist and (NL) for neoliberalist.
(R): The international system, if it is a “system” at all, is composed of sovereign nationstates which are the primary units in both the political and legal sense. Nation-states are
the most important actors in world politics because they have sovereignty and also have
power in conducting their relations with other nation-states.
(NL): States are the most important actors in the international system, but there are other
important actors who play a major role in world politics such as non-governmental
organizations, multinational corporations, transnational and transgovernmental coalitions,
labor unions, political parties, trade associations, international agencies and institutions.
(R): Leadership and decision-making are centralized in the nation-state. Sovereign
nation-states possess interests and are the only form of organization entitled to interests.
(NL): Leadership and decision-making has been moving toward decentralization, though
they are not fragmented as traditional liberalists would argue, and they are concerned
with security.
(R): Nation-states operate on a rational basis, rational in the sense of egoistic and selfish
motives, much the same way human beings interact.
(NL): Yes, nation-states do operate on a rational basis; however, nation-states should and
in fact have moved towards operating on a more cooperative basis for each other’s
benefit and realization of common interests such as the need to secure greater comfort
and well-being for their own populations.
(R): International anarchy, the fear of it, and the need for survival as independent actors
supports and shapes these motives and actions by nation-states.
(NL): Technology, knowledge, interdependence, the need for military stability, trade and
financial liberalization, the concern for human rights, the spread of democracy and
capitalism – all undermine the force of international anarchy, as traditional liberalists
would argue. But above all the very prospect of international anarchy is its own
undermining force as there is an overwhelming fear of instability and the recognition that
order is in everyone’s best interest as everyone has something to loose from worldwide
conflict.
(R): As the international environment is anarchic, nation-states will pursue their own
interests. These interests are defined and realized in the pursuit of power and security by
nation-states and not by cooperation of international institutions and organizations.
(NL): Along with the interest in stability, states are increasingly becoming more
preoccupied with economic and social growth as multiple international institutions
proliferate with specialized roles towards similar ends without threatening state
sovereignty.
(R): Interests become matters of international concern when competing nation-state
actors press these interests. For instance, when issues involving scarce resources are
present in the relations between sovereign states, then power must be used to resolve the
difference. States are therefore predisposed to competition in the mildest sense and
conflict in the most extreme sense.
(NL): Common interests become matters of international concern as a matter of political
stability in order to foster conditions of economic and social prosperity. Issues involving
common interest, such as the scarcity of resources, necessitate international cooperation.
(R) The exercise of power is the political means of conflict resolution in international
relations. One political instrument of power is military force, which is one option for
resolving differences between states.
(NL): International disagreements and arguments are situations that can be met by mutual
reciprocity and cooperation.
(R): International organizations and institutions affect the possibility of cooperation
slightly or indistinctly.
(NL): International organizations and institutions promise a more positive result in world
affairs by being involved in the negotiation and cooperation process.
Grieco believe the neo-liberalist paradigm fails because of several
misunderstandings. First, the meaning of anarchy for the neo-liberalist is that “no central
agency is available to enforce promises”, but this definition is incomplete because
anarchy also entails that this lack of central authority in addition means no provision for
protection against destruction or enslavement. Second, neo-liberalists assume that states
define their interests according to individualistic gain, whereas the realist paradigm is
also concerned with the relative gains of other states, as this might create over time gaps
in the prospect for state survival by the incremental increase in power by other states and
thereby an increase in threat. “The fundamental goal of states in any relationship is to
prevent others from achieving advances.” State survival is more relevant than
maximizing power. Third, the neo-liberalist characterizes states as “atomistic actors” in
which the state seeks to maximize their own position regardless of and indifferent to
other states (“absolute gains”), which is different from the realist characterization of
states as “defensively positional” or observant of others and what they are achieving
(“relative gains”). The mistake is in assuming that states do not gain or lose at the
expense of others. In fact, “utility maximization” depends upon the other’s limitation in
payoff. Fourth, realists understand “the persistence of uncertainty in international
relations. States are uncertain about one another’s future intentions; thus, they pay close
attention to how cooperation might affect relative capabilities in the future.” However,
this I believe is the shortcoming of realism as well. Intentions cannot be assessed without
a world government. States are insufficient actors to provide information on intentions.
The intelligence failures of the United States alone, which spends more on intelligence
than the combined budgets of all the other countries of the world on the matter, speaks
volumes. There was the lapse of intelligence on the North Korean invasion of South
Korea in 1950, China’s entry into the Korean conflict in the same year, the failure of the
Bay of Pigs in 1961, the developments in Vietnam in the 1960s, the unforeseen invasion
of Afghanistan by the Soviets in 1979, the fall of the Iranian Shah in the same year, the
breakup of the Soviet Union in 1989-1991, and of course the terrorist attacks in 2001.
Some questions can be raised by Grieco’s assessment. Can international
organizations enforce cooperation? Can they function as a central authority or agency to
enforce promises and provide protection or security? For that matter, can states ensure
security? These seem to be the prominent questions for both realist and neo-liberalist.
For the realist, security is a function of military power whereas for the neoliberalist it is rather an increase in such national goals as growth, full employment, and
price stability. Both arguments, taken simultaneously, seem to be true in a few examples,
namely China and India. Whereas these developing nations that have become orientated
toward economic growth and social security by liberalizing their markets, there has also
been a preoccupation with military power and prestige. In the case of China there has
been a large buildup of their navy, while India has recently acquired the atomic bomb.
Whereas the realist argument might be valid for a certain period in time (1940s-1980s,
2000s?), the neo-liberalist argument is equally compelling for a particular time period
(1920s, 1990s). Has the issue of terrorism redirected priorities about what constitutes
security? More importantly, which philosophy can resolve the problem?
While neo-liberalists admit that “there is no common government to enforce rules,
and by the standards of domestic society, international institutions are weak,” they would
argue that “countervailing forces” or international organizations can operate in the
“absence of a centralized authority or some other countervailing force to bind states to
keep their promises” (492-493).
The proliferation of non-governmental organizations (NGOs) and transnational
advocacy networks (TANs) are examples where cooperation can work in the absence of
such an authority. Their ability to achieve political goals concerning issues such as
human rights and succeed by tactics such as “information politics” (the ability to generate
and effectively use relevant information), “symbolic politics” (the ability to call upon
action from distant audiences), “leverage politics” (the ability to utilize powerful and
influential actors), and “accountability politics” (attempting to hold world leaders
accountable to their promises and actions) demonstrates their effectiveness (Keck &
Sikkink, Activists Beyond Borders). The reversal of Argentina’s and Mexico’s human
rights violations came as a result of Amnesty International drawing attention to the issue
and thereby forcing international pressures upon them. Contrary to Grieco, there are
instances in which political collective action or international cooperation of international
institutions and organizations are possible and even more effective than state action
because of their impartiality, reliability, representativeness, and accountability.
Furthermore, there can be cooperation on economic goals as well. Economic
openness is necessary for both small and large nations if one or the other wishes to
benefit. This economic openness facilitates interdependence in two ways: (1) specialized
industries, which are vital to a small nation’s economic system must import a wide range
of goods from large scale industries and (2) large scale industries, which thrive on highquality goods, must rely on the specialization of goods that small scale industries possess.
This import-export relationship that develops between the smaller and larger nations
heavily focuses on demands and needs of each nation. Both smaller and large nations
absorb each other’s inflation of goods. Whereas smaller nations do not allow for a variety
or diversity of different industries, their necessity for exports drives other nations to
interdependence with these small nations who specialize in high-quality goods. Whereas
large nations do not allow for the degree of high-quality goods, their necessity for exports
drives other nations to interdependence with these large nations who produce a manifold
of goods.
However, the fact is that “anarchy means that states may wish to cooperate” but
the lack of an agent with enforcement powers makes them aware that “cheating is both
possible and profitable” (497). Despite the lack of authority and the neo-liberalist
identification of cheating as the main problem, the dilemma remains that this lack of
world government prevents full trust among nation-states.
Neo-liberalists make the mistake of assuming that all information is transparent or
can be made transparent by international organizations and that detection of deception is
inevitable, while realists commit the same mistake by assuming that nation-states can
provide for better international relations by preventing war, despite both their inability to
reveal intentions. In a world of imperfect knowledge where absolute transparency does
not exist and where there is an absence of an objective power that can make everything
noticeable and clear to all, it is naïve to rely upon good faith, mutual benefit, and
amorphous organizations. While transparency on capabilities might exist, transparency
surely does not exist on intentions. There is no need to come forth with one’s intentions.
The issue and actors of enforcement is where the philosophies deviate from one
another, but the effectiveness of enforcement is equally flawed. Can trustworthiness be
measured in current world affairs? Can accountability be concretely enforced? One
should have a concern about international security and the need for the role of a
supranational authority. In the current condition of continual regional, civil, ethnic, and
sectarian strife and in the actual absence of a supranational enforcement power to provide
for transparency of intentions, both schools of thought fail. The neo-liberalist argument
fails in that there is no genuine cooperation, that international institutions cannot prevent
outbreak of war, and that relative gains are just as important when assessing
uncertainties, risks, and cooperation. The realist argument fails in that states cannot
reliably predict threats or provide enough protection against the threat of irrational rogue
states or non-state actors. Nation-states should be integrated into a world governing body,
in which states can cooperate more transparently and peacefully.
Reginald Bauer
The Interrelatedness of the International and Domestic
Gourevitch attempts to show that theories of international politics that treat
domestic politics as independent from international politics is problematic. Gourevitch
seems to favor what he calls “coalitional analysis” as it “explains policy through
investigation of the content of group interests and the efforts to form alliances among
them” (905). This explanation allows one to see the interactions between international
and domestic politics and how each impacts the other, the content rather than the
structure, or rather an explanation of why certain policies are adopted by states.
In particular there are two primary features of the international system that affect
states on the domestic level: war and trade. Military power and economic wealth are
categories of the past that are just as relevant to understanding how the international
system affects domestic politics. Gourevitch looks at “regime type and coalition pattern”
as “the properties of a political system most often used as a variable for the explanation
of foreign policy” since these “constitute enduring features of a given political system,
one which operate over time to shape behavior at specific moments of decision, events, or
policy formation” (883).
Gourevitch examines how five different theories have interpreted the roles of war
(or power) and trade (or wealth) as international forces and their effect on regime types
and coalition patterns. For all of the theorists, the international system affects domestic
political structures.
The first theory, put forth by Gerschenkron, argues that the international market
force of industrialization gave rise to various configurations of regimes and social forces
depending on whether the particular state industrialized early or late. Typically,
industrializing earlier meant there were fewer competitors and inexpensive technology,
which enabled low entry costs. Industrializing later with competition firmly established
and industry highly complex meant higher entry costs.
“The more advanced the world economy, the greater the entry costs. Paying those costs require
greater collective mobilization, which in turn requires greater central coordination. Societies
which, prior to industrialization, developed strong central institutions will find these institutions
useful if they attempt to catch up with ‘early’ industrializers” (885).
Barrington Moore continues the same argument by “suggesting that bourgeois
democracy, fascism, and communism are successive modes of modernization” (886).
Understanding their origins and diverse paths to modernity as the consequence of various
responses to the forces of capitalism indicates the importance of capitalism, especially the
world economic system, in the formation and transformation of political regimes and
coalitions. Those nations that industrialized later tended to develop stronger centralized
institutions. However, in order to determine the impact of the international economy the
particular state’s internal character must be explored. The importance of internal social
development is as important as the time the nation industrialized. The logic used here is
that the international political economy affects domestic politics and that knowledge
about the domestic politics of a nation is important in order to understand how the impact
of the international economy will affect it.
The second argument, put forth by the “dependencia theorists” see little if no
importance of the domestic politics of a nation. Instead, the international political
economy shapes the internal politics of a nation. They argue, like the Gerschenkronians,
“the non-repeatable nature of development, the new rules for each follower, the
importance of competition” (888). At the same time, they hold the advanced capitalist
countries responsible for the constraints placed upon developing countries.
“Since capital, organization, technology, and military preponderance are in the hands of the core,
the core countries are able to set the terms under which skill, capital, and markets will be provided
to the periphery. The core forces others into subservience: suppliers of raw materials, purchasers
of finished goods, manufacturers of whatever the core allows them to do. The developing
countries are unable to allocate resources according to their internal needs, following some
alternative vision of development. As a result they are locked into a structure where the benefits of
growth accrue disproportionately to the core. Countries in the periphery develop dual economies:
an expanding modern sector tied to the needs of the core, and a stagnant, miserable sector,
irrelevant to the needs of international capitalism, hence abandoned and ignored. The political
consequence of this system for the periphery is some form of imperialism” (888-889).
For these theorists, the international system and the way it operates by means of
capitalistic market forces promotes the specialization of labor. It is this position in the
international division of labor that determines regime type and coalition pattern. The
shortcoming of this argument is that these theorists provide no explanation as to why one
political system would arise instead of another, that is, why some regimes develop into an
authoritarian and militaristic rule, a socialist rule, or into a more liberal and civilian rule.
The third viewpoint, which can be attributed to the “liberal development school”,
offers “a very apolitical analysis” (891). This school argues that the international political
economy affects domestic political structures by the same interplay of market forces, but
that the contribution of technology, competition, and foreign capital, which are here
perceived as positive factors, initiates the process of growth and wealth for all nations,
leading to the elimination of all poverty and inequality. Whether the relationships
between the nations are initially unequal is inconsequential, since benefit is sure to follow
for the non-industrialized and poorer countries. Rather, these group of thinkers believe
that had market forces not been introduced to underdeveloped nations, then these nations
would have remained in their same economically deprived or stagnate conditions. Yet, as
some theorists point out, there is no reason why such countries would develop along the
same lines as their more fortunate counterparts since “new conditions require new
models, new arrangements of people, resources, institutions, politics” (892). While the
Gerschenkronians remain pessimistic and the dependencia theorists condemn the system,
these liberal pro-market theorists remain optimistic and see it as beneficial.
The fourth group of thinkers emphasizes the importance of transnational relations
and interdependence. This argument rests on the premise that the domestic politics of the
present has broken with the past to such a degree that new categories of analysis are
required to explain the international political economy. The rapid growth and influence of
transnational, international, and multinational organizations, made possible by
technology, over economic issues shifts the power away from traditional political forces
(nation-states) and introduces other international, foreign actors that influence domestic
politics.
Gourevitch calls the fifth and final group the neo-mercantilists and state-centered
Marxists, who believe that while the international economic system attempts to restrain
the state by influence their policies and controlling the action of governments, the
importance of the power of the state does not diminish in the face of this system. For neomercantilists, the importance of the power of the state does not diminish in the face of the
international economic system. Rather, the governments of these states assert their power
through vital or national interests, which is irreducible to any one group. States are
generally unwilling to compromise on matters affecting their sovereignty, the outcome of
which is too important to be submitted to any other authority. Whenever the state desires
to act, its power is greater than that of any other actor in world politics. In a hegemonic
system, the international economy will be more open, while in a multipolar system,
individual states in the international economy will develop a protectionist and
nationalistic economic system (894). The need for stability and the preservation of values
are of concern for neo-mercantilists while for Marxists it is not important. Marxists, on
the other hand, argue that the state has enormous autonomy and that the elites use the
state to advance their own economic goals to preserve the capitalist system.
So, “which aspect of domestic structure best explains how a country behaves in
the international sphere?” (900). Since there must be some reference to internal politics as
states are not formed by apolitical conditions, any theory that derived the domestic
structure completely from the international system cannot work. Nor can the argument
that domestic politics is independent from the international context be an explanation as
the two obviously interact in which international pressures affect domestic changes. With
all the discussion on “the presence and character of bureaucracy, the pressure of the
masses on policy making or the lack of such pressure, the strength and autonomy of the
state, the drives of the advanced capitalist economy, the perceptual set of leaders, the
logic of industrial development, the relative weight of transnational actors in a given
polity, the level of modernization” – all of these categories fall short of incorporating
politics as these arguments focus on institutional arrangement, on process and procedure,
separate from the relations and decisions among the coalitions, groups, interests,
organizations, and political parties involved. These are he prime actors always missing
from the picture.
I agree with Gourevitch that international relations and domestic politics are
interrelated, but whether this is to be recognized as positive or negative is another
question. What is the future of small nations and small-scale industries? What are the
prospects for democracy? What are the economic consequences? What are the
implications for worldwide stability? Indeed, domestic politics are not independent from
international politics as Katzenstein shows how small European states are dependent on
the international economy for their position.
As a small nation’s trade policy is multilateral, which reduces their dependence
on any single trade partner, their dependence on imports from large nations make these
small countries open to influences from the international economy. Whereas larger
nations can afford to operate on a laissez-faire economic philosophy as their industry
sector is sufficiently diversified to foster numerous large enterprises, smaller nations
must, as a result of their small-scale industry and lack of diversity in industry, attract
foreign capital and investment more so than the larger countries to pay their deficits. As a
result, this can threaten their national sovereignty, not to mention alter their political
system away from a democratic model and into an oligarchy.
Smaller countries must rely on organizations and companies that have multiple
functions and integrate with other businesses or make alliances with each other in order
for there to be a sufficient amount of services and products. Practically speaking, larger
corporations cannot exist because of the limited size of the population, the limited
amount of investment into competitive practices within the country when exports matter
so much, and the limited amount of resources and area to work with. As a result, power
becomes more concentrated in a few people, in a few strong interest groups and parties,
enabling an oligarchic system to emerge. Centralization and monopoly are therefore on a
larger scale than in other industrialized countries. Policy decision-making is therefore
also concentrated in an elite group of bureaucrats, producer groups, and political parties
who work closer together, coordinate efforts easier, achieve compromise through tradeoffs and cooperation more frequently, and are able to mobilize political support easier. As
such, the distinction between public and private life dissipates.
Another problem with the interrelatedness of international politics and domestic
politics that leaves one to ask whether this system should be desired is Calleo’s example
of how an excessively influential or powerful political and military agent, such as the
U.S., can come to manipulate and dominate the international economic system that leads
to a financial crisis in smaller nations. Smaller states absorb the inflation from larger
industrialized nations.
The U.S.’s persistent balance-of-payments deficit, a deficit of goods, services, and
long-term investments, arose from the continual and disproportionate consumption and
taking by its economy whereas what it produced and earned was significantly less. As
Calleo points out, in order to finance this deficit, a nation has to either “use its own
reserves or else attract foreign capital,” otherwise “impending bankruptcy will force a
change in habits” and the nation “will no longer be able to take from abroad more than it
provides” (256).
With the investment in military and economic aid to European nations during the
early period of the Cold War by the U.S., the U.S. dollar continued to accumulate in
European banks and markets. As the U.S. deficit increased and payments were made by
reserves, the dollar grew weak because of inflation, more domestic and military spending,
and insufficient taxes and economic growth. As inflation pushed domestically produced
goods higher in relation to foreign goods, American capital went abroad instead of
investing in modernizing production at home. The trade balance became sharply
negative. As the U.S. dollar fell, this could only mean higher unemployment and lower
investment in exports, which smaller nations rely upon heavily. As inflation hit in 1973,
food and oil prices increased. Since Europe and Japan relied heavily on imported oil, they
had to offset these prices by practicing conservation of energy, reducing domestic
demand for oil, and promoting exports. As American consumption of oil did not decrease
at all, dollars flooded oil rich states, the crowd of borrowers increased rapidly, credit was
granted by banks, debt soared, and almost every country ran a deficit by borrowing. This
creation of credit, due to the special role the U.S. dollar had in the international market,
constituted an illusion of money on a world scale, severely disrupting economies around
the world. Although this did not result in another Great Depression, the problem could
have easily brought with it the complete collapse of our fragile international political
economy. The recent crisis in which Asian companies borrowed too much short-term
money, most of it denominated in foreign currency, in financing their long-term projects
is a recent example. What is certain about the interconnectedness of the international and
domestic systems is its absolutizing of the economy, bringing with it imaginary spending,
debt-ridden practices, unemployment, reduction and deterioration of public services,
unfair competition, and the growing divide between poor and rich nations.
Reginald Bauer
John Ruggie and International Regimes
In this paper, Ruggie is formulating a thesis about how international regimes for
money and trade (like the GATT and the IMF) have “reflected and affected the evolution
of the international economic order since World War II” (379). In arguing against the
theory of hegemonic stability, Ruggie develops the concept of “embedded liberalism.”
International economic regimes reflect this “embedded liberalism” in which multilateral
cooperation is designed to reinforce domestic economic stability.
What are international regimes? They are defined as “social institutions around which
actor expectations converge in a given area of international relations” (380). What are the
analytical components of international regimes?
 They consist of “principles, norms, rules, and procedures” (380).
 But, international regimes also “embody…political rights and obligations” (380).
 Therefore, “the formation and transformation of international regimes…represents
the internationalization of political authority” (380).
Ruggie evokes the traditional (neo-realist) model of the formation and transformation
of international economic regimes (the hegemonic stability theory):
 Which predicts that “if economic capabilities are so concentrated that a hegemon
exists,…an ‘open’ or ‘liberal,’ international economic order will come into being”
(381).
 And which says that if “the concentration of economic capabilities erodes, the
liberal economic order is expected to unravel” and be replaced by more
mercantilist orders, in which domestic political authority is asserted over
international economic issues (381).
 Although this model is not wrong, “it does not take us very far in understanding
international economic regimes and their formation and transformation (381).
He proceeds to make three theoretical arguments:
1) The neo-realist IR theory of hegemonic stability relies solely on the language of
power, thereby ignoring the dimension of social purpose. In other words, political
authority represents “a fusion of power with legitimate social purpose” (382). This
formulation of focusing only on power may predict the form of the international order,
but not its content. So, “to say anything sensible about the content of international
economic orders and about the regimes that serve them, it is necessary to look at how
power and legitimate social purpose become fused to project political authority into the
international system” (382). Only when we fuse these two factors together can we predict
the content of the international order. Ruggie calls this character of the international
economic order “embedded liberalism.”
2) International regimes “encompass the behavior of states vis-à-vis the market-place”
(383). They are not the market-place itself. International economic regimes do not
determine the kinds of international transaction flows; instead, they “provide a permissive
environment for the emergence of specific kinds of international transaction flows that
actors take to be complementary to the particular fusion of power and purpose that is
embodied within those regimes” (383). To phrase it another way: international economic
regimes are neither determinitive (as viewed by neo-liberals) nor irrelevant (as viewed by
neo-realists). Instead, they “provide part of the context that shapes the character of
transnationalization” (383).
3) Whereas the hegemonic stability theory supposes only one source of regime change
(power), Ruggie believes the occurrence of change in and of regimes is not solely a
function of power, but also of purpose. This broadens the dimensions of sources of
change:
 A situation in which there is a hegemon but no resemblance of a social purpose
among the leading economic powers (Dutch supremacy during the 17th century)
 There can be a case in which there is neither a hegemon nor a comparative social
purpose among the leading economic powers (the interwar period)
 There can be a case in which there is both a hegemon and a comparative social
purpose among the leading economic powers (the Bretton Woods period)
 A situation in which there is no hegemon but a resemblance of social purpose
among the leading economic powers (the post-1971 international economic order)
It is the last case that interests Ruggie the most. If the “concentration of economic power
erodes” (the hegemon declines), we can assume that the instruments (rules and
procedures) will change (384). However, “as long as purpose is held constant, there is no
reason to suppose that the normative framework [principles and norms] of regimes must
change as well. In other words…rules and procedures (instruments) would change but
principles and norms (normative frameworks) would not” (384).
Ruggie wants to show that the economic changes that took place post-1971 (after
the collapse of Bretton Woods) were not an abandonment of economic liberalism but an
adjustment of economic principles and norms. In order to do this, Ruggie distinguishes,
after Karl Polanyi, between “embedded” and “disembedded” economic orders.
Nineteenth century society, with its defense of laissez-faire capitalism in and for
itself, witnessed “a separate economic system in society…in which economic activity
was isolated” (385). This era of capitalism defined wealth as the principal objective the
“pursuit of which state power was expected to be employed in the domestic economy”
(386). The result was the domestic demand for freer trade, while the state came to
safeguard the market. A reaction against the market occurred after WWI. The state’s role
was transformed. Governments intervened and assumed a greater role and tendency to
“direct responsibility for domestic social security and economic stability” (388, 390,
392). According to Ruggie, efforts to construct an international economic regime failed
because it stood in contradiction to the disembedded structures of either an all-important
market or a state-run economy.
Following WWII, there was a shift to a different type of liberalism – “embedded
liberalism”, which was a move to maneuver between the two extremes, sacrificing neither
international trade nor the full autonomy of governments in addressing problems in their
domestic economies. The aim was to “devise a framework which would safeguard and
even aid the quest for domestic stability without, at the same time, triggering the mutually
destructive external consequences that had plagued the interwar period” (393). This
system promoted and institutionalized liberalism (GATT) or free and stable exchanges on
one hand, while it also allowed individual states to practice autonomy in domestic
economic affairs. Governments could promote domestic growth policies while also
maintaining monetary stability through international cooperation (IMF) by short-term
borrowing to finance payment deficits, rationing the supply of currency, and allowing
nations to impose exchange restrictions on their currency. The essence of the embedded
liberalism compromise is that “unlike the economic nationalism of the thirties, it
[embedded liberalism] would be multilateral in character; unlike the liberalism of the
gold standard and free trade, its multilateralism would be predicated upon domestic
interventionism” (393). That multilateralism and the quest for domestic stability were
coupled and even conditioned by one another reflected the shared legitimacy of a set of
social objectives to which the industrial world had moved (398).
Ruggie then turns to “examine whether and how this framework is reflected in the
character of the international economic transactions” (399). Ruggie imagines two
different possibilities in which governments, looking toward economic liberalization, can
emerge.
There is the “compelling logic of David Ricardo” in which “governments are
likely to encourage an international division of labor based on the functional
differentiation of countries that reflects their comparative advantage” (399). Ricardo
elaborated the idea of “comparative advantage” according to which free trade offers all
countries, rich and poor, chances to gain by specializing in what they do best. These
comparative advantages arise from local skills and productivity. The most productive
countries gravitate toward the industries in which they have the greatest advantage. As
long as the most productive countries and the less developed ones can trade freely, both
gain from this specialization.
The other government operates under the similar circumstances, but the difference
is that it operates on embedded liberalism. It is “a form of multilateralism that is
compatible with the requirements of domestic stability” (399). Governments “encourage
an international division of labor which, while multilateral in form and reflecting some
notion of comparative advantage (and therefore gains from trade), also promise to
minimize socially disruptive domestic [forces]…that might accrue from international
functional differentiation” (399). At the domestic level there is collective welfare, a
sharing in social community by the creation of social programs, and moderating the
volatility of the markets. At the international level there is the functional differentiation at
the level of product and firm (instead of as the level of country and sector), controlled
intercontinental trade in which gains are smaller, and institutions such as the IMF.
Therefore, embedded liberalism does not overemphasize comparative advantage
and minimizes domestic social disruption. This shows that
“international economic regimes do not determine international economic transactions…nor are
international economic regimes irrelevant to international economic transactions. They play a
mediating role, by providing a permissive environment for the emergence of certain kinds of
transactions, specifically transactions that are perceived to be complementary to the normative
frameworks of the regimes having bearing on them” (404).
Ruggie therefore maintains that
“if international regimes are not simply emanations of the underlying distribution of interstate
power, but represent a fusion of power and legitimate social purpose…then, the decline of
hegemony would not necessarily lead to the collapse of regimes, provided that shared purposes are
held constant” (404).
He uses the 1970s as a case in point. In the 1970s, there were important changes
in monetary and trading regimes (the end of the dollar being convertible into gold and the
adoption of floating exchange rates), which many neo-realists argued contributed to a
decline in U.S. hegemony. Ruggie concedes this, but he maintains that the basis of the
economic regimes remained the same: competition without endangering domestic
stability. Thus, while institutions like the IMF and the GATT changed to reflect a
lessening of American influence, this did not amount to a reversion to an earlier
economic system. Why did such an event come to pass? Because governments are no
longer prepared to let their domestic economies be entirely at the mercy of international
competition. Hegemonic decline, hence, is not necessarily destabilizing when social
purpose remains the same.
Ruggie ends by posing the question: “How enduring is embedded liberalism?”
(413) The answer to this question, in his opinion, depends on the response to the
problems of inflation, the role of the private markets in dealing with deficits and lending,
and the problem of developing countries.
There is a severe problem with Ruggie’s model. It does not seem that embedded
liberalism characterizes the modern world at all, since many western countries have
abolished tariffs and capital is allowed to move freely. Rather, it does seem that a
reversion to a kind of unrestricted free trade has taken place. Instead, what you have
today seems to resemble pre-1914 conditions: intercontinental trade is high (trade
dominates), the concentration and global organization of capital, high borrowing by
countries, large international finance flows, and long-term foreign investment.
Earlier, Ruggie mentioned that international economic regimes are neither the
sole conditioning force of society nor completely displaced from it. Instead, they
“provide part of the context that shapes the character of transnationalization” (383). But if
they are in part responsible for transnationalization, then it seems that embedded
liberalism is undermined. Embedded liberalism depends upon the relationship that states
and individuals maintain with one another. Transnationalism, though, opens up a world in
which states or governments loose a significant portion of their role in the economy.
Instead, what one has are tremendously empowered individuals or groups that seem to be
unrestrained in their ability to drive economies. Instead of embedded liberalism, there are
relationships between and among individuals and other entities (NGO’s, IO’s, etc.),
regardless of nation-state boundaries. There is global co-operation between people, which
transcends national boundaries and in which nation-state governments do not play the
most important or even a significant role. Rather, this new system entails a vision of the
obliteration of the nation-state to make way for a unified world government.
------------------------------------------------------------------------------------------------------------Reginald Bauer
John Ruggie
International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar
Economic Order
Summary
 Ruggie is formulating a thesis about how international regimes for money and trade (like
the GATT and the IMF) have “reflected and affected the evolution of the international
economic order since World War II” (379).
 In arguing against the theory of hegemonic stability, Ruggie develops the concept of
“embedded liberalism.” International economic regimes reflect this “embedded
liberalism” in which multilateral cooperation is designed to reinforce domestic economic
stability.
What are international regimes?
 They are defined as “social institutions around which actor expectations converge in a
given area of international relations” (380). Accordingly, as is true of any social
institution, international regimes limit the discretion of their constituent units to decide
and act on issues that fall within the regime’s domain.
What are the analytical components of international regimes?
 They consist of “principles, norms, rules, and procedures” (380).
 But, international regimes also “embody…political rights and obligations” (380).
 Therefore, “the formation and transformation of international regimes may be said to
represent a concrete manifestation of the internationalization of political authority” (380).
Ruggie evokes the traditional (neo-realist) model of the formation and transformation of
international economic regimes (the hegemonic stability theory):
 Which predicts that “if economic capabilities are so concentrated that a hegemon
exists,…an ‘open’ or ‘liberal,’ international economic order will come into being” (381).
 And which says that if “the concentration of economic capabilities erodes, the liberal
economic order is expected to unravel” and be replaced by more mercantilist orders, in
which domestic political authority is asserted over international economic issues (381).
 Although this model is not wrong, “it does not take us very far in understanding
international economic regimes, and, by extension, the formation and transformation of
international regimes in general” (381).
He proceeds to make three theoretical arguments:
1) The neo-realist IR theory of hegemonic stability relies solely on the language of power,
thereby ignoring the dimension of social purpose. In other words, political authority represents “a
fusion of power with legitimate social purpose” (382). This formulation of focusing only on
power may predict the form of the international order, but not its content. So, “to say anything
sensible about the content of international economic orders and about the regimes that serve
them, it is necessary to look at how power and legitimate social purpose become fused to project
political authority into the international system” (382). Only when we fuse these two factors
together can we predict the content of the international order. Ruggie calls this character of the
international economic order “embedded liberalism.”
2) International regimes “encompass the behavior of states vis-à-vis the market-place” (383).
They are not the market-place itself. While international economic regimes do not determine the
kinds of international transaction flows that occur nor are empty of such events, they do “provide
a permissive environment for the emergence of specific kinds of international transaction flows
that actors take to be complementary to the particular fusion of power and purpose that is
embodied within those regimes” (383). To phrase it another way: international economic regimes
are neither determinitive (as viewed by neo-liberals) nor irrelevant (as viewed by neo-realists) in
private transaction flows and in the international economy. Instead, they do “provide part of the
context that shapes the character of transnationalization” (383).
 Transnationalism refers to relationships between and among individuals and other
entities, regardless of nation-state boundaries.
 Transnationalism refers to global co-operation between people, and points to activities,
which transcends national boundaries and in which nation-state governments do not play
the most important or even a significant role.
 Furthermore transnationalism often entails a vision of the obliteration of nation states to
make way for a unified world government.
3) Whereas the hegemonic stability theory supposes only one source of regime change (power) in
which there can be two directions of this change: ascendancy or decline, “greater openness or
closure”, and Ruggie believes the occurrence of change in and of regimes is not solely a function
of power, but also of purpose. Furthermore, he suggests that power and purpose do not
necessarily vary in the same time period (384). This broadens the dimensions of sources of
change:
 A situation in which there is a hegemon but no resemblance of a social purpose among
the leading economic powers (Dutch supremacy during the 17th century)
 There can be a case in which there is neither a hegemon nor a comparative social purpose
among the leading economic powers (the interwar period)
 There can be a case in which there is both a hegemon and a comparative social purpose
among the leading economic powers (the Bretton Woods period)
 A situation in which there is no hegemon but a resemblance of social purpose among the
leading economic powers (the post-1971 international economic order)
It is the last case that interests Ruggie the most. If the “concentration of economic power erodes”
(the hegemon declines), we can assume that the instruments (rules and procedures) will change
(384). However, “as long as purpose is held constant, there is no reason to suppose that the
normative framework [principles and norms] of regimes must change as well. In other
words…rules and procedures (instruments) would change but principles and norms (normative
frameworks) would not” (384). So, instruments (rules and procedures) reflect the new power
distribution.
Ruggie wants to show that the economic changes that took place post-1971 (after the collapse of
Bretton Woods) were not an abandonment of economic liberalism but an adjustment of economic
principles and norms. In order to do this, Ruggie distinguishes, after Karl Polanyi, between
“embedded” and “disembedded” economic orders.
1) The structure of international authority
 For Polanyi, “the economic order is merely a function of the social, in which it is
contained” (385).
 However, nineteenth century society, with its defense of laissez-faire capitalism in and
for itself, witnessed “a separate economic system in society…in which economic activity
was isolated” (385).
 This era of capitalism, in which a balance between “authority” and “market” was
established, redefined the “legitimate social purposes in pursuit of which state power was
expected to be employed in the domestic economy” (386). The internationalization of
economic authority was the result of domestic demands for freer trade, while the state
came to safeguard the market.
 A reaction against the market occurred after WWI. The state’s role was transformed into
that of a mediator between the market and society. Governments intervened and assumed
a greater role and tendency to “direct responsibility for domestic social security and
economic stability” (388, 390, 392).
 According to Ruggie, following WWI, “efforts to construct international economic
regimes in the interwar period failed not because of the lack of a hegemon. They failed
because, even had there been a hegemon, they stood in contradiction to the
transformation in the mediating role of the state between market and society” (392). The
state “altered fundamentally the social purpose of domestic and international authority”
by making “international monetary policy conform to domestic social and economic
policy” (392).
 So, to rephrase it: a new monetary regime could not be constructed because to do so
would have been to contradict the existing norm of cooperation that was contingent on
domestic stability.
2) The compromise of embedded liberalism
 Following WWII, there was a shift to a different type of liberalism – “embedded
liberalism”, which was a move to maneuver between two extremes: free trade (in which
currency level stability was given precedence over price stability and reducing
unemployment) and protectionism (in which governments tried to have full autonomy in
addressing problems in their domestic economies while sacrificed international trade).
 The aim was to “devise a framework which would safeguard and even aid the quest for
domestic stability without, at the same time, triggering the mutually destructive external
consequences that had plagued the interwar period” (393).
 This system promoted and institutionalized liberalism (GATT) or free and stable
exchanges on one hand, while it also allowed individual states to practice autonomy in
domestic economic affairs.
 Governments could use Keynesian domestic growth policies (emphasizing national selfsufficiency, reliability upon mass production where goods were made within the country,
vilification of unbridled capitalism with its free trade and free mobility of capital which
are provocations toward war rather than preserving peace, a minimization of economic
ties and entanglements between nations, and allowing finance to be primarily national),
while also maintaining monetary stability through international cooperation (IMF) by
short-term borrowing to finance payment deficits, rationing the supply of currency, and
allowing nations to impose exchange restrictions on their currency.

The essence of the embedded liberalism compromise: “unlike the economic nationalism
of the thirties, it [embedded liberalism] would be multilateral in character; unlike the
liberalism of the gold standard and free trade, its multilateralism would be predicated
upon domestic interventionism” (393).
 But that multilateralism and the quest for domestic stability were coupled and even
conditioned by one another reflected the shared legitimacy of a set of social objectives to
which the industrial world had moved” (398).
3) Complementary transaction flows
 Ruggie characterizes the period of the 1950s and 1960s by the gradual rise of
international economic regimes (like GATT and the IMF) that institutionalized the
normative framework (principles and norms) of embedded liberalism.
 He now turns to “examine whether and how this framework is reflected in the character
of the international economic transactions” (399).
 Ruggie imagines two different possibilities in which governments, looking toward
liberalization, can emerge after the breakdown of mercantilism: (The economic theory
that holds the prosperity of a nation dependable upon its supply of capital, represented by
gold and silver bullion, which is held by the state and which is best increased by a
positive balance of trade with other nations. This theory suggests that the ruling
government should advance these goals by playing a protectionist role in the economy by
the encouraging of exports and discouraging imports, especially through the use of
tariffs).
 There is the “compelling logic of David Ricardo” in which “governments are likely to
encourage an international division of labor based on the functional differentiation of
countries that reflects their comparative advantage” (399). Ricardo elaborated the idea of
“comparative advantage” according to which free trade offers all countries, rich and poor,
chances to gain by specializing in what they do best. These comparative advantages can
arise from things as basic as geography or climate, but they more often have to do with
local skills and productivity. As Ricardo argued, the most productive countries gravitate
toward the industries in which they have the greatest advantage. As long as the most
productive countries and their less developed peers can trade freely, both gain from this
specialization.
 The other government operates under the similar circumstances, but the difference is that
it operates on embedded liberalism rather than on laissez-faire capitalism. It is “a form of
multilateralism that is compatible with the requirements of domestic stability” (399).
Governments “encourage an international division of labor which, while multilateral in
form and reflecting some notion of comparative advantage (and therefore gains from
trade), also promise to minimize socially disruptive domestic adjustment costs as well as
any national economic and political vulnerabilities that might accrue from international
functional differentiation” (399). At the domestic level, collective welfare, a sharing in
social community by the creation of social programs, and moderating the volatility of the
markets characterize this economy. At the international level there is the functional
differentiation at the level of product and firm (instead of as the level of country and
sector), controlled intercontinental trade in which gains are smaller, and institutions such
as the IMF.
 Therefore, postwar transaction flows are better explained by embedded liberalism. This
can be seen, as mentioned, in the international division of labor, which does not
overemphasize comparative advantage and also minimizes domestic social disruption.
 This further shows that “international economic regimes do not determine international
economic transactions…nor are international economic regimes irrelevant to international
economic transactions. They play a mediating role, by providing a permissive
environment for the emergence of certain kinds of transactions, specifically transactions
that are perceived to be complementary to the normative frameworks of the regimes
having bearing on them” (404).
4) Norm-governed change (changes due to norms)
 Ruggie, as seen, maintains that “if international regimes are not simply emanations of the
underlying distribution of interstate power, but represent a fusion of power and legitimate
social purpose, our cause and effect reasoning becomes more complex. For then, the
decline of hegemony would not necessarily lead to the collapse of regimes, provided that
shared purposes are held constant” (404).
 In the 1970s, there were important changes in monetary and trading regimes (the end of
the dollar being convertible into gold and the adoption of floating exchange rates), which
many neo-realists argued contributed to a decline in U.S. hegemony.
 Ruggie concedes a decline in U.S. hegemony, but he maintains that the normative
(principles and norms) basis of the economic regimes remained the same: competition
without endangering domestic stability.
 Thus, while institutions like the IMF and the GATT changed to reflect a lessening of
American influence, this did not amount to a reversion to mercantilism.
 The “new protectionism [that] reflects the victory of the interventionist, or welfare,
economy over the market economy…is not an aberration from the norm of postwar
liberalization, but an integral feature of it” (410). It is a part of liberal capitalism.
 Governments are no longer prepared to let their domestic economies be entirely at the
mercy of international competition.
 In other words, changes in money and trade have been at the instrument (rules and
procedures) rather than the norm level (412). Hegemonic decline, hence, is not
necessarily destabilizing when social purpose remains the same.
5) Stress, contradiction, and the future
 Ruggie ends by posing the question: “How enduring is embedded liberalism?” (413) The
answer to this question, in his opinion, depends on the response to the problems of
inflation, the role of the private markets in dealing with deficits and lending, and the
problem of developing countries.
Problems, objections, thoughts:
 It does not seem that embedded liberalism, which involves the mediation by governments
over transactions through tariffs and capital controls, characterizes the modern world
since many western countries have abolished tariffs and capital is allowed to move freely.
 Instead, what you have today seems to resemble pre-1914 conditions:
Intercontinental trade is high (trade dominates)
The concentration and global organization of capital
High borrowing by countries
Large international finance flows
Long-term foreign investment