Week 4 Cooperation and Conflict in the Global Political Economy

The Study of Global Political Economy In 1970s, as a sub-field of IR, IPE (or GPE) emerged in response to: 1.Changes and developments in the world and in world politics End of fixed exchange rate system in early-1970s Rise in commodity prices in early-1970s (i.e. OPEC factor) New International Economic Order (NIEO) 2.Trends and evolution in theory building Questions about the dominance of the realist agenda (inter-paradigm debatein between realism, institutionalism and structuralism ) Gaps in the agenda of the disciplines of International Relations and Economics [ as a legacy of behavioralism]

Lecture Plan Globalization & the Need for International Cooperation Game Theoretic Approach – The Prisoners’ Dilemma – The Stag Hunt – Battle of the Sexes Solutions for Cooperation The Formation of Institutions Institutional Design

Globalization Global interdependence, or mutual dependence, arises when there are costly effects or high benefits to interaction among states With increasing interdependence, questions of collaboration and coordination become increasingly important

Cooperation vs. Collaboration vs. Coordination (J.L.Stoner,2013 ) Collaboration: Working together to create something new in support of a shared vision. The key points are that is not an individual effort, something new is created, and that the glue is the shared vision. (i.e.CERN) Coordination: Sharing information and resources so that each party can accomplish their part in support of a mutual objective. It is about teamwork in implementation. Not creating something new. (i.e. establishing platforms to avert uncertainty) Cooperation: Individuals exchange relevant information and resources in support of each other’s goals, rather than a shared goal. Something new may be achieved as a result, but it arises from the individual, not from a collective team effort. (i.e.trade)

The Need for Intl Cooperation (1) There are economic benefits to the integration of world markets but the domestic cost of adjustment can be an obstacle or opposition to global integration – Challenges of Free Riding Overcoming Uncertainty/Inhibiting Fear Where to Meet/ Bargaining over Distribution of Gains (relative vs.absolute gains)

The Need for Intl Cooperation (2) Governments may be tempted to free ride, or adopt protectionist policies, depending on – Domestic protectionist lobby pressures – Flexibility of economy to adjust (i.e.labour market) Governments may experience “inhibiting fear” – economic liberalization may lead to economic instability and subsequently political instability

The Need for Intl Cooperation (3) Coordination is required to negotiate the distribution of gains and losses from international cooperation (the “where to meet” problem) The type of good (private vs public vs inclusive club) will also shape the challenges in cooperating

Game Theoretic Approach Useful analytical tool to examine interdependent decision-making Typical problems of international cooperation can be modeled by different “games” “Games” describe – Choices available to actors/players – Actors’ evaluations of potential outcomes – Information actors have when they make choices

The Nash Equilibrium The set of decision(s) such that no individual participant, acting alone, can gain anything by altering his decision. Modification to the strict self- interest predicted by Adam Smith, because it takes into account the influence of competitors' decisions. (i.e.blocking each other)Adam Smith Provides counter-examples to the idea that individuals working in their own self-interest work in the best interest of society as a whole.

Pareto(Efficiency)-Optimal Possibility of being better off through indiviual action.BUT; No actor can be better off without making others worse off, meaning individual move will worse off the common good. This collectively (Pareto) optimal situation is unstable because each actor can improve his or her own situation by individually shifting strategy.

Types of games 1)Prisoner Dilemma (Free Riding Temptation) 2)Stag Hunt ( Inhibiting Fear) 3)Battle of Sexes (Where to Meet)

1) The Prisoner’s Dilemma Key point: Actors face a structure of interaction that prevents them from reaching a cooperative solution even though such a solution would be optimal – meaning will serve to the common good - for all actors IPE examples: – Reciprocal trade liberalization (particularly applies to large economies) – Collective management of resources (i.e.OPEC)

‘Free Riding Temptation’ (Note:most preferred is 4 )

2) The Stag Hunt (Inhibiting Fear) Key point: Actors share a single most-preferred outcome but have difficulty in reaching such an outcome due to the anticipation of possible mistake or unintentional move by other actors IPE example: – Financial globalization ( fear of potential policy mistake of an individual country that might cause global destabilization)

Stag Hunt

The Stag Hunt

3) Battle of the Sexes (Where to Meet ?) Key point: there are two equilibrium outcomes that are Pareto-superior to other outcomes. Coordination is required in order to reach either outcome IPE example: – International coordination of macroeconomic policies (i.e. efforts of developing countries to choose mutually compatible macroeconomic policies) – Choice of international monetary system (the US & GB in 1940s; Eurozone; China-Russia alternative currency)

Ravenhill: Global Political Economy 4e

To be continued after the break

Cooperation may not arise or fail due to: – Actors’ incentives to cheat – Actors’ sensitivities to distribution issues – Lack of confidence in the other actor’s behaviour

Solutions for Cooperation (1) Repeated games/interactions may increase chances of individual actors cooperating – May be undermined by Low expected net value of cooperation High expected costs of defection by others Difficulty in gathering information

Solutions for Cooperation (2) Institution or regimes for cooperation – Consists of Principles and norms Rules and procedures – 3 major functions A channel for the enforcement of agreements (targets uncertainty problem) Help states craft and choose among different responses (targets distribution problem) Facilitates cooperative behaviour (targets assurance problem)

5 Approaches on Formation/Evolution of Institutions 1)Neo-realism 2)Neo-realist institutionalism 3)Neo-liberal institutionalism 4)Cognitivism 5)Constructivism

The Formation of Institutions (1) Neo-realists ( Waltz, Mearsheimer) – Regimes and international institutions have no significant role in international relations – Collaboration only sustainable if states highly value future interactions, have symmetric resources and are highly interdependent

The Formation of Institutions (2) Neo-realist Institutionalists (Kindleberger, Gilpin,Krasner) – Institutions have distributional consequences – Institutions can help control actors’ behaviour – Role of hegemonic powers in the development of institutions – Overemphasize tensions arising from the differences in the distribution of benefits between actors – Downplay the possibility that actors might prioritize absolute over relative gains

The Formation of Institutions (3) Neo-liberal Institutionalists (J.Nye, Keohane) – Institutions can lower costs of choosing, organizing, negotiating and entering into an agreement – Actors create institutions because they are useful – Existing institutions may constrain future institutional developments

Under what conditions can independent countries cooperate in the world political economy? In particular, can cooperation take place without hegemony and, if so, how? …Cooperation can under some conditions develop on the basis of complementary interests, and that institutions, broadly defined, affect the patterns of cooperation that emerge (Kehone, 1984,p.9).

The Formation of Institutions (4) Cognitivists (E.Haas) – Emphasize the role of expert consensus and the interplay of experts and politicians – New knowledge and cognitive understandings may affect the calculation of interests Constructivists (A.Wendt) – Norms and values are dominant causal forces – Institutions can alter how actors conceive their basic interests and thus constrain their behaviour

Institutional Design (1) Institutions can be characterized by: – Membership – Stringency of rules – Scope – Extent of delegation of power from member states to institutional bodies – Centralization of tasks within the institution

Institutional Design (2) Variation of institutional design along these dimensions affected by: – Type of problems that institutions should address – Potential participants (the number of these actors, their relative power, their financial and “social” capital) – Information and knowledge available to actors – Outside or pre-existing institutional context

Ravenhill: Global Political Economy 4e