IRTD - Chapter 6: Neo-Liberalism §

• Is Neo-Liberalism the same thing as Institutional Liberalism?
• What are pacific union values in Republican Liberalism (Democratic Peace Theory)?
  • Are they liberal/western values of freedom, liberty, individualism…?
• What are the challenges of cooperation?
  • States have challenges of trust and fear in the anarchic world
  • Anarchy also creates Collective action impediments: bandwagon, free-ride, groupthink?
  • They require a international institution to keep everyone in check and behaving.
• Neo-Liberal focus is how to redesign institutions to more efficiently obtain cooperative outcomes
• WTO used as case study
  • What good did it do for international free trade cooperation?
• Key Terms
  • Formal institutions: are multilateral organizations with physical locations, buildings, staffs, budgets, and other resources at their disposal.
  • International Regimes: are informal institutions consist of ‘sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given area of international relations’ International Institution
  • Free Ride: the act of one state benefiting by another states efforts without contribution or permission.

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Introduction §

• Neo-Liberalism is a variant of liberal IR theory that focuses on the role international institutions play in obtaining international collective outcomes, and for this reason it is often called ‘neoliberal institutionalism ’
• International Cooperation happens when one’s party policy/plan would also benefit another’s policy/plan.

What is Neo-Liberalism? §

• Definitions of Neo-Liberalism
  • Actors: state-centric: states is the unitary, rational, utility-maximizing actors who dominate global affairs
    • consider states as one unit not composed of many different individuals and interests
  • State/Human Nature: states make self-interested decisions based on strategic cost-to-benefit analysis of possible choices, reactions, and outcomes
  • Possibility of Progress: cumulative progress in human affairs is possible in promoting freedom, peace, prosperity, and justice on a global scale
    • collective benefits may be obtained through human reasoning
    • increased interaction and information exchanged by well designed institutions brings collective benefits
    • Policy-makers and other relevant actors can create and reshape institutional structures in order to more effectively obtain collective interests

1. How does anarchy inhibit cooperation?

2. Is a hegemon necessary to a capitalist free trade system?

3. What role does information exchange and iteration play in achieving cooperative outcomes?

4. How is power relevant to a neoliberal analysis?

5. What are the pros and cons of assuming that states are unitary actors with specifiable goals?

6. What are the pros and cons of assuming that interdependence encourages cooperation?

7. How does neoliberalism study the subject of institutional design?

8. What are some of the ethical dilemmas confronting neoliberalism analysis?

9. How would neoliberalism analyse cooperation in an issue area such as environment or human rights?

• What does Neo-Liberalism say?
  • Neoliberalism concerns itself with the study of how to achieve co-operation among states and other actors. Neoliberals accept that co-operation may be difficult to achieve but argue that it has been facilitated by growth of international institutions and international regimes.
• What are Neo-Liberalism’s assumptions?
  • Neoliberalism is premised on liberal assumptions about the possibility of cumulative progress in human affairs and thus views anarchy, in contrast to structural realists, as a vacuum which is gradually filled with human-created processes.
    • similar to constructivism? where int’ actors interactions create systems in IS?
  • This does not make neoliberals ?idealists?, however. They recognize the difficulties involved in overcoming the anarchic environment in international politics.

2. stands in the way of achieving beneficial collective outcomes?

• Neoliberals predominantly characterize these in their analyses of:
  • free-riding
  • game theory
  • the game of Prisoner’s Dilemma for example, which are used to clarify the difficulties in rational decision-making processes involved in co-operation.

Historical Evolution of Neo-Liberalism §

6. What occurred historically to encourage the growth of common interests?

• Key early influence on neoliberalism was pluralism-literature, which argued that a variety of non-state actors were breaking down the barriers between domestic, and thus had to be considered for a more accurate understanding of international affairs.
  • What is Pluralism-Literature?
  • Pluralism challenges Realism’s assumption that the only influential actor in global politics are States
  • Transnationalism and ‘transnational relations’ were making states less secure or in control
• However, neoliberalism adopts a state-centric perspective, which, like structural realism, considers states to be unitary, rational, utility-maximising actors. It is heavily indebted to the study of rationality and utility-maximization in economics.
  • Robert Keohane and Joseph Nye made the arguments with Realism using its own assumption.
    • Saying even with chaos that Anarchy brings, there are still ways for cooperation
• How does Neo-Liberalism differ from Realism?
  • As such key neoliberal texts, such as Keohane and Nye’s Power and Interdependence, sought to challenge realist pessimism, but adopted the realists’ assumption of self-interested egocentric actors.
  • What are the differences between the two’s perspectives
• In the The Four Great Debates in IR, Neo-neo debates between neorealists (Grieco, Krasner) and neoliberals (Keohane) took place in the 1980s and 1990s.
  • 1980s and early 1990s: the neo-neo debate between Robert Keohane (neo-liberal) and Joseph Grieco (neo-realist)
    • makes Neo-Realism and Neo-Liberalism characterized the same as Rationalism approaches to IR
  • Here, neoliberals highlight two key historical developments in 20th century that have made realism increasingly inaccurate as a description of world politics:
    1. increasing interdependence between actors
    2. hegemonic stability provided by the US

Differentiate Structural Realism and Neo-Liberalism §

4. How does neoliberalism challenge structural realism?

• There have been many critics of the analytical convergence of structural realism and neoliberalism.
  • These perspectives have been criticized on account of their state-centrism, their
    • unitary actor assumptions: important dynamics (globalization, transnationalism, non-state actors) in world politics would continue to be missed by both theories
    • the rational actor assumption: made it impossible to separate the independent causal effects of regimes from what states did or wanted
    • their ontology and epistemology: created analytical inconsistency that falsify its too vague assumptions
• It should not be forgotten, however, that there are differences between realist and neoliberal approaches, for example, on their understanding of the meaning of anarchy.
  • Structural Realism: says anarchy is an unchanging condition or environment that creates inability for states to control outcomes and ensure survival generates the paranoia, fear, and drive for power
  • Neo-Liberalism: says anarchy does create inability to control own’s outcome. But human created processes and institutions cumulatively gives more control to states, meaning less paranoia, fear, and drive for power over time
• Institutions provide progress from failtures ⇒ cooperation
  • Institutions are crucial here, because they can facilitate iteration, and hence co-operation, neoliberals have an interest in developing the rational design of institutions.

Historical Development that made Realism less accurate and Neo-Liberalism more accurate §

1. Rise of Interdependence or mutual dependencies made actions and interests are entwined

   • It is therefore costly to one’s own interests to threaten or end the relationship

   💡 Preventing depletion of shared natural resources is common interest

   • problems referred to as low politics: global economics, health, refugees, or immigration

   • can only be resolved through cooperation efforts

2. Misinterpreting Post-WW2: US and UK planned the post-war recovery system during WW2 and made UN as center for cooperative relations

   • IMF & IBRD: focused on capitalist economic and free trade system called the Bretton Wood system
     • US backed these institution as a hegemon for other states’ confidence in trading ⇒ extensive international regime evolved for capitalist economics
   • US’s hegemonic power has declined but interdependence in each other’s economies means they can’t end relations because dependence on access to one another’s markets and consumers
     • cooperation could be obtained in anarchy in the absence or decline of a hegemon

Challenges of Institutional Design §

• The barriers of cooperation from Anarchy:
• States with common interest isn’t enough for cooperation
  • They may lack information about one another’s true preferences
  • They fear others cheating in a cooperative arrangement
  • They fear others will free-ride
  • They may believe the cost of potential consequence of cooperation is too risky
• Neo-Liberals believe barriers to cooperation exists but are not impossible to overcome
• ThroughGame Theory: even with option for zero-sum decisions, actors are still forced to choose win-win option into an increasing-sum game because:
  • tit-for-tat: when states interact multiple times they are rewarded for cooperation and punished for defection
    • someone can only be fooled once to have your state’s name tainted as cheater
  • Prisoner’s Dilemma is a Game Theory: Neo-Liberals says the barriers to effective cooperation are:
    • lack of information or transparency about the potential pay-offs and hence the real value of cooperation or defection
    • the incentive to ‘cheat’ on one’s partner or fear of being cheated from mistrust
• Explain further about Increasing-Sum Game.

1. How can the barriers to international cooperation be overcome?

• The recurrent interactions or expectation of future interaction or exchanging information, as well as monitor one another’s behaviour, reduces concerns over actual intentions and the consequences of being cheated (tit-for-tat)
  • Solution: International Institutions offer constant and regular meetings occur between national leaders and policy-makers
    • for leaders to consider one another’s shared needs, incentive, and goals to cooperate for collective outcome
    • treat common concerns such as free-riding, cheating…

3 Challenges to Institutional Design §

• Nonetheless, there are three major challenges to the design of institutions that neoliberals recognize:

bargaining (how it is facilitated) §

defection (how it is mitigated) §

• States know what they’re getting into when joining or creating an international institution. It comes with issues of free-riding, risk of cheating, and being cheated.
  • It gives them more info about who they’re dealing with: they have common goal of working with institutions for cooperation and ready for consequences, less incentive to cheat
• How we deal with defection is more important
  • Measuring compliance: Institutional mechanisms to monitor state compliance. As states know they are being monitored it encourages compliance
  • transparency needed to be combined with reduced implementation costs, the threat of sanctions, and an emphasis on actively preventing violations
  • Others: provide financial incentives, act as moral persuaders, serve as neutral third parties, and actively manage member state disagreements
• Issue linkage: defectors either be punished for their cheating or not
  • Defectors are only punished if the institution convince the relevant parties to implement those sanctions and punishments through ’coercive cooperation’
• Must have dispute resolution mechanism:
  • flexibility in institutional compliance mechanisms is an essential design element to encourage compliance: renegotiations should happen
  • agreements should include loopholes and escape clauses to not be too rigid as to deter states from signing

autonomy (do institutions have autonomy from states) §

• How does studying International institutions different from studying states if Institutions are created to serve self-interest of states?
  • Institutions have sovereignty in acting as creator of norms and agenda setter in global politics
    • they act as neutral third party or unbiased platform for cooperation to promote particular values and goals
  • They have autonomy in control and coordination of technical expertise and information
• International institutions have obligations overseeing daily global tasks that states (People, goods, services, and ideas across borders)
• Principle Agent Theory: examines how states delegate tasks and authority to international institutions which serve as their independent representatives within particular issue areas.
  • Delegation: gives autonomy to International Institutions
  • states develop mechanisms to delegate instituttions more effectively which is thes ource for institutional redesign ideas

Case Study §

• Case study. The ****WTO serves as a forum of free trade organizations and agreements, for states to negotiate free trade agreements and settle trade disputes. It rests on the presumption that it is normatively valuable and along the stag hunt analogy - rationally beneficial to participate in the global activity of capitalist free trade.

• Case study continued. WTO’s institutional design developed out of the collective experience with GATT. Established in 1948, out of Anglo-American hegemonic vision of a new global economic order during the Second World War, it finally crumbled under its inability to coordinate trade liberalization, given the different domestic pressures on states towards protectionism. Rounds of negotiations within the GATT framework led to the establishment of the WTO in 1995.

• Case study continued. WTO is a formal inter-governmental organization with a full Secretariat and an extensive institutional structure to cover all aspects of trade. Despite collective will, WTO has faced heavy critiques:

  • decentralized
  • undemocratic institution that represents corporate interests
  • North-South divisions.

  Nonetheless, it demonstrates the importance of institutional design to collective goals in an otherwise anarchic environment.

• Conclusion. International co-operation is now an embedded, enduring feature of global politics. Neoliberalism’s goal is to understand how international institutions foster, maintain and deepen this co-operation. Neoliberals are aware of the problems with co-operation and with institutions, but maintain that it is important to study how these problems might be mitigated. Neoliberalism is characterized by a normative assumption that growth of institutions has been a positive development, particularly in global capitalist affairs, which some other IR scholars challenge.****

References §

• [1]: Chapter 5: Revision guide | Oxford University Press