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date: 21 September 2017

Institutions and the Global Political Economy

Summary and Keywords

In a comparison of today’s global political economy with that of the last great era of globalization, the late nineteenth century, the most prominent distinction is be the high degree of institutionalization in today’s system. While the nineteenth-century system did have some important international institutions—in particular the gold standard and an emerging network of trade agreements—it had nothing like the scope and depth of today’s powerful international economic institutions. We cannot understand the functioning of today’s global political economy without understanding the sources and consequences of these institutions. Why were international organizations (IOs) such as the World Trade Organization (WTO) or International Monetary Fund (IMF) created? How have they gained so much influence? What difference do they make for the functioning of the global economy and the well-being of individuals around the world?

In large part, understanding IOs requires a focus on the tension between the use of power, and rules that are intended to constrain the use of power. IOs are rules-based creatures. They create and embody rules for gaining membership, for how members should behave, for monitoring, for punishment if members renege on their commitments, etc. However, these rules-based bodies exist in the anarchical international system, in which there is no authority above states, and states continue to exercise power when it is in their self-interest to do so. While states create and join IOs in order to make behavior more rule-bound and predictable, the rules themselves reflect the global distribution of power at the time of their creation; and they only constrain to the extent that states find that the benefits of constraint exceed the costs of the loss of autonomy.

The tension between rules and power shapes the ways in which international institutions function, and therefore the impact that they have on the global economy. For all their faults, international economic institutions have proven themselves to be an indispensable part of the modern global political economy, and their study represents an especially vibrant research agenda.

Keywords: global political economy, political institutions, International Monetary Fund, World Trade Organizations, international organizations

Introduction

This article begins by surveying the basic strategic dilemmas that drive states to create institutions at the global level. For the most part, these dilemmas involve problems of bargaining, monitoring, and enforcement. After this overview, we turn to three particularly striking and important issues in the study of global governance. First, the article considers the debate over whether formal or informal exercise of power best explains the rules-power tension in IOs. Second, there is the general issue of institutional design, focusing on dispute-resolution provisions in trade agreements. Finally, there is an examination of a burgeoning body of work that argues that scholars should not study individual regimes or IOs in isolation, but rather, given the increasing density of institutionalization, adopt a more holistic approach.

Strategic Dilemmas: Bargaining, Monitoring, and Enforcement

The modern scholarly study of global governance and global political economy began in the early 1980s. Prior to this time, the study of international institutions (IOs) was primarily policy-oriented and descriptive, without an overarching analytical framework (Martin & Simmons, 1998). Although earlier individual studies generated strong insights, they did not add up to a coherent debate about the role of IOs in the global political economy. The publication of International Regimes (Krasner, 1983) and of Robert O. Keohane’s After Hegemony (Keohane, 1984) set the study of IOs on a new track. These books developed a sweeping new analytical framework for studying institutions on the global level. Two observations motivated this research: first, that international economic cooperation in the 1970s was fairly consistent in spite of substantial underlying shifts in the distribution of global economic power; and second, the persistence of organizations such as the Bretton Woods institutions and the General Agreement on Tariffs and Trade (GATT). Keohane and others argued that these two observations were related, and that the presence of institutions and IOs explained patterns of economic cooperation.

Keohane (1982) summarizes the logic of a contractual or functionalist view of international institutions. States need to overcome a range of collective-action problems in order to cooperate. Without external enforcement, any agreements must be self-enforcing. Therefore, states must find ways to avoid temptations to cheat—for example, erecting protectionist barriers that undermine commitments to freer trade. Avoiding temptations to cheat requires that states have good information about the actions and preferences of other actors, and about the likely consequences of reneging on agreements. States also need to coordinate their actions, for example by agreeing on common technological and public-health standards. IOs provide settings in which states can address the various collective-action problems that threaten global cooperation. They also perform monitoring functions, providing assurance that others are living up to the terms of their commitments. They serve as forums for negotiating to resolve coordination problems, and to learn about the preferences of and constraints facing other governments. They specify and create mechanisms for enforcement and dispute resolution, even if actual enforcement powers remain in the hands of member states. Through these functions, IOs provide a foundation for international cooperation. Global cooperation becomes more resilient in the face of underlying shifts in power and interests.

Building on this early research, the study of IOs has been shaped by the tension between rule-based behavior and the exercise of power. Overall, the story of the institutionalization of the global political economy is a continuing struggle between attempts to negotiate and enforce consistent norms and rules, and the desire of powerful states to exert their influence over outcomes. Whether we consider the process of bargaining or dispute resolution, or the use of institutional loopholes, we see this struggle defining the terms of political and scholarly debate. While states and other actors could reap large potential benefits from consistently enforced rules, evidence suggests that outcomes continue to be influenced by power politics.

International institutions tackle fundamental strategic problems in the global economy. Many issues, such as international trade, can be modeled as classic strategic dilemma, such as a Prisoners’ Dilemma (PD). We know that impediments to trade are costly, decreasing the aggregate welfare of states by increasing costs to consumers, depriving exporters of markets, and generally distorting the allocation of economic resources. Thus, states would gain aggregate welfare benefits by decreasing impediments to trade. However, some individuals within these states do not benefit from freer trade. In particular, domestic producers who will be forced into increased competition from imports will not benefit from trade liberalization, and will lobby the government for continued protection (Grossman & Helpman, 1994). Thus, governments face continual pressure to renege on the terms of trade agreements, providing protection for injured domestic actors. Similar considerations apply when we look at other issues, such as regulation of financial relations. IOs that address PD situations thus face two fundamental problems. First they need to structure and facilitate international bargaining. By creating a framework in which negotiators can set standards of behavior and agree on the specifics of policies, institutions enhance international cooperation. Secondly, IOs need to provide mechanisms that encourage states to live up to the terms of these agreements.

Institutions should structure bargaining processes to encourage cooperation. The process should ideally encourage beneficiaries of cooperation to mobilize and exert pressure on governments to reach deals. The GATT/ and WTO structure, to use trade as an example, assures that exporters have incentives to mobilize, by making clear the benefits that will accrue to them; the norm of reciprocity plays a large role in creating these benefits (Gilligan, 1997). In addition, in trade bargains negotiators reach complex “package deals” that are often subject to an up-or-down vote back home. Looking beyond the GATT and WTO models, regional trade deals utilize a similar bundling mechanism. Packaging deals this way allows negotiators to put together sets of measures that domestic political actors will approve.

A major question about bargaining is whether the institutional structure itself influences the outcomes. Compared to unstructured, ad hoc bargaining, does the GATT and WTO structure lead to outcomes that protect the interests of smaller states, for example? Does it encourage greater liberalization? Both could well be true. The fact that small states are engaged in various ways in each negotiating round, and have to approve the final agreement, could give rise to more respect for their interests. One advantage of multilateral, structured negotiations is that they enhance the scope for mutually beneficial deals, compared to bilateral bargaining. For example, Christina Davis finds that linking negotiations on manufactured goods and on agriculture was the key to liberalizing the agricultural sector, and that institutionalizing this linkage enhanced its credibility and effectiveness (Davis, 2004, 2003).

Secondly, IOs work to assure that states will uphold agreements. Because of constant political pressure to deviate from the terms of cooperative agreements, governments are tempted to renege on, or simply fail to fully implement, the agreed-upon measures. We are unlikely to see institutions directly empowered to enforce agreements in order to overcome these temptations. However, they can nevertheless play a substantial role in facilitating decentralized enforcement. We see institutions in the global political economy developing strong monitoring and dispute-resolution mechanisms, as well as standards for punishment of those who defect from agreements, in response to these challenges. The following discussion will provide a more detailed discussion of scholarship on dispute resolution.

If many private (and public) actors are motivated to monitor what other governments are doing, institutions face a relatively easy challenge. This is often the case in trade, for example, because if an exporter is finding it more difficult than expected to sell to a particular country or is losing market share, this actor has a strong incentive to discover any violations of international agreements by competitors. In addition, the GATT and WTO enforcement structure creates incentives for producers for the domestic market to uncover violations. It does this by allowing states harmed by violations to respond with retaliatory tariffs, which they can target as they like within the offending country; typically, they target politically sensitive sectors. Thus, the ingenious but simple punishment scheme used in most trade agreements facilitates “fire-alarm” monitoring mechanisms; little direct oversight by the organization itself would appear necessary (McCubbins & Schwartz, 1984).

However, in other issues actors face more difficulty observing compliance, as private actors may not be able to play this fire-alarm role. In such cases, governments or IOs must play a more intrusive monitoring role. For example, most financial transactions lack transparency, at least compared to trade transactions. Therefore, it is not surprising the financial institutions such as the IMF have taken on a relatively invasive surveillance role. The institutionalized nature of the modern global political economy makes monitoring an essential function, whether it is done by private actors, governments, or IOs.

Building on these analyses of underlying strategic dilemmas in the global economy, studies of bargaining and dispute resolution have turned to discussions of institutional design, and its effects have dominated studies of bargaining and dispute resolution. One specific issue of institutional design, across both global and regional institutions, is the conditions under which states can “legally” evade the rules of IOs, at least on a temporary basis. Downs and Rocke (1995) developed a general model of international cooperation in the face of domestic political uncertainty that provides great insight into this problem. When governments negotiate agreements, they know that they will face political pressure to renege on these agreements. However, they do not know with certainty how intense these pressures will be or from which sectors they will come, because these pressures are subject to exogenous shocks and shifting patterns of political mobilization. If unexpectedly intense demands to renege emerge, governments may find that they are better off acceding to these demands and withdrawing entirely from deals. However, if they were instead allowed the option of temporarily backing out of their commitments in the face of unusually high political pressures, the regime could survive and make all better off than if these “pressure-release valves” did not exist. Thus, the authors argue that a certain level of “optimal imperfection” should be observed in agreements that have this political structure.

This analysis suggests that the design of escape clauses and related loopholes is of vital importance to the success of IOs. Scholars have picked up this idea and developed more precise arguments about the appropriate design of such loopholes. Rosendorff and Milner (2001) show that escape clauses enhance the durability and stability of trade institutions in the face of domestic political uncertainty. However, to prevent the abuse of these clauses, states must bear a cost for using them. This “self-enforcing penalty” appears to be reflected in various dimensions of the WTO—for example, requiring offsetting concessions for the use of escape clauses. Barbara Koremenos (2001) considers the flexibility built into agreements in more general terms. She sees the fundamental problem as one of assuring a certain distribution of gains across states, rather than a response to unexpected domestic pressures. This sort of uncertainty explains the incidence of renegotiation provisions in many agreements, among other institutional features.

In many ways, the design and functioning of IOs reflects the basic strategic dilemmas they face. Promoting beneficial exchanges requires that institutions structure bargaining practices, monitor compliance with commitments, and provide enforcement mechanisms. We also see that the struggle between rule-based interaction and the exercise of power plays out continually (see the discussion later in this article on the exercise of informal power within institutions). While rules constrain the processes of bargaining and dispute resolution, the best empirical studies confirm that the actual functioning of institutions reflects continuing realities of power politics. Scholars ask about the relative freedom of maneuver available to IOs, given patterns of state interests. This problem is played out in an ongoing battle between rules that constrain state behavior and the exercise of state power.

A common strategic problem that IOs confront is to provide assistance to allow states to overcome short-term problems, while not providing an “easy out” that will allow them to avoid adopting responsible policies. The tension between providing assistance and encouraging moral hazard is prominent in financial interactions. In any financial transaction, institutions need to walk a fine line between encouraging the provision of funding that will be beneficial for both the borrower and the lender, and encouraging moral hazard. Moral hazard is a serious concern in these transactions. Consider the typical case addressed by the IMF. A country has fallen into a financial crisis, either through poor policy or exogenous shocks. The government finds itself unable to make good on its commitments to make payments on its outstanding debt, and the value of its currency is collapsing. If the roots of the crisis will pass, the provision of temporary financing will benefit both the country that receives the financing and lenders, who will be likely to recover more of their assets once the crisis has passed. However, a government that knows that it will be bailed out of such crises is likely to behave more recklessly, adopting inappropriate policies and borrowing too heavily. This is the moral hazard dilemma (Vaubel, 1983).

IOs can address the moral hazard problem by imposing conditions on their assistance, thus attempting to force states to adopt more responsible policies. Conditionality itself is contentious and subject to the battle between rules and power described above. This basic strategic problem—potential benefits from assistance, but the possibility of a moral hazard—has led many scholars to use a principal-agent framework to study IOs. This approach is appropriate and useful because it allows us to ask about the likelihood that an IO will err on one side or the other. Will it follow the demands of powerful states and provide “too much” assistance, thus exacerbating the moral hazard problem? Will it be autonomous enough to find an optimal path between moral hazard and assistance?

In a principal-agent framework, the members of an IO, especially the most powerful states, are treated as the principals that use the IO to implement their preferred policies. IOs, as agents, have their own interests. Usually these are assumed to be relatively “technocratic” interests, that is, not as driven by politics as those of member states. The question, then, is the extent to which IOs can pursue their own agenda, as opposed to responding to the specific demands of their principals. The ongoing tug-of-war between rules and power describes the dynamics of most IOs. The general principal-agent literature gives rise to a number of propositions that can be applied to IOs. For example, greater divergence of interest among principals tends to increase agent autonomy; and greater agent expertise or access to information also tends to increase their autonomy.

The core elements of modern analysis of governance of the global political economy begin with a focus on the underlying strategic problems states face. Based on this understanding, we see that a constant theme in governance is the tension between rules and state power. This focus also draws attention to the autonomy of IOs from their member states. The next three sections will move beyond this general overview to concentrate on three especially important and intriguing research agendas: formal versus informal influence; institutional design; and complexity and networks.

Formal versus Informal Influence in the Global Political Economy

As discussed already, institutions create tension between the exercise of power, and the behavior that is constrained by institutional rules. These rules also create a new source of power for members of institutions. One of the most vibrant debates in the study of governance in the global economy is about the extent to which institutional rules influence the exercise of power. On one side of this debate, scholars argue that formal rules about institutional procedures determine who is able to exercise influence within the institution. On the other side, scholars argue that powerful states with intense interests at stake will find ways to work around or even violate these rules in the pursuit of self-interest.

To illustrate this debate, consider some of the most powerful institutions in the global political economy: the international financial institutions (IFIs). These include the IMF, the World Bank, regional development banks, and other institutions, such as the Bank for International Settlements. Many of these organizations have a remarkably similar organizational structure. In fact, even the newly proposed Asian Infrastructure Investment Bank, which China sees as a counterweight to Western-dominated IFIs, closely follows the Bretton Woods model in the design of the institution. These organizations are overseen by a Board of Governors, which delegates day-to-day operation of the institution to an Executive Board. Being represented on the Executive Board is thus important for exercising influence within the organization. Some Executive Directors (EDs) are appointed by a single country, while others are elected by groups of countries. While much decision-making occurs by consensus, behind this consensus is a complex voting mechanism in which the number of votes that each ED has is roughly determined by that country’s (or group of countries’) weight in the global economy. Since most decisions technically require a supermajority, in practice this voting system gives substantial power to the member states with the largest economies.

If you were to read journalistic coverage of these institutions, you would notice an apparent paradox. On the one hand, the IFIs are described as largely autonomous from their members, with large, powerful staffs and significant budgets over which these staffs exercise influence. Many observers see them as “runaway” organizations, out of the control of their members (Thomas, 2009). But others—or sometimes even the same observer—describe them as utterly under the thumb of their largest shareholder, the United States (Toussaint, 2014). Scholarly work has tried to sort out these conflicting messages about the exercise of power within IFIs, sometimes by looking closely at the rules of the organizations, and sometimes by searching for evidence of informal influence.

Mark Copelovitch (2010) argues that the formal rules of the IMF prevent the United States from dominating international loan practices. It does not, alone, have enough votes to veto individual loan packages. Instead, he finds that influence is exercised by a small group of the largest shareholders, the G5, which includes the United States, the United Kingdom, Germany, France, and Japan. This group does, indeed, have sufficient voting power to dominate the institution. Copelovitch looks for evidence of G5 influence by developing indicators of G5 interests in IMF activities and finding a strong correlation between these interests and the pattern of IMF lending. In particular, he argues that the IMF should be generous in its lending to countries in which banks in the G5 are heavily exposed. Because G5 governments will want to bail out these banks, we should see larger loan packages with more lenient terms in countries with substantial G5 bank exposure—and indeed, he finds precisely this pattern. Thus, Copelovitch argues that the formal rules of the IMF matter a great deal, as they empower the G5 to exercise very significant influence over its activities.

In contrast, Randall Stone (2011) finds that the mechanisms of influence in the IMF have little to do with the specifics of voting power within the organization. Formal rules matter to some extent; but for example, the United States has 17% of total IMF votes, but Stone finds that U.S. influence far exceeds what we would expect based on this vote share. In “normal” times—lack of global crisis or a crisis in a geopolitically important country—the rules do matter, as Copelovitch argues. However, when the stakes are high, the United States turns to more informal mechanisms of exerting power, such as working through management and staff and manipulating information. Stone shows that U.S. influence is high with respect to the size, terms, and enforcement of programs. He also draws an important normative conclusion from this analysis, finding that because of political interference, many packages that are well-crafted from a technocratic perspective actually fail.

In another fascinating study about the exercise of informal power, Vreeland and Dreher (2014) turn to connections between IOs, in particular between the United Nations Security Council (UNSC) and the IFIs. The UNSC is made up of five permanent members (the P5) and ten non-permanent members who are elected to two-year terms. Passing resolutions on the UNSC requires nine affirmative votes. Thus, the P5 need to get support from the nonpermanent members in order to pass resolutions about which they care strongly. Vreeland and Dreher argue that one way that the P5 get support is by buying the votes of non-permanent members with increasingly generous packages from the IFIs. They present substantial statistical evidence that when a country becomes a nonpermanent member of the UNSC, aid from the IFIs increase for those two years, as does bilateral aid from P5 members. They also find intriguing anecdotal evidence—for example, trips from U.S. secretaries of state to small countries that never received a high-level visit until they were elected to the UNSC. While it is difficult to say exactly how this coordination between IOs works, Vreeland and Dreher present powerful evidence that it exists, and that informal channels of power go beyond individual IOs to their interaction. Again, their analysis raises normative concerns. The UNSC is the premier actor providing legitimacy for the use of force in the international system. If votes on the UNSC are being bought through the IMF, World Bank, or regional development banks, this phenomenon undermines the legitimacy of the UNSC as well as these other organizations.

Understanding the role of IOs in the global political economy requires that we understand the degree of autonomy that they have from their member states and that, when member states do exercise influence, how they do it. Sorting out these puzzles is one of the most active research agendas in this field. Some find that the exercise of power closely follows the formal rules of IOs; others find that formal influence occurs under different conditions than informal influence; and others that informal influence is pervasive—and even nefarious.

Institutional Design and Dispute Settlement

Can we explain the variation in institutional form that we observe in the global political economy, and is this variation consequential? These questions have motivated a large and growing literature. The literature has moved beyond very general and abstract models of design (e.g., Koremenos, Lipson, & Snidal, 2001) to zero in on specific design features. One particularly productive area involves the design of dispute-resolution mechanisms, especially in trade agreements. How these mechanisms are structured, and how (if at all) this structure influences state behavior, constitutes an active research agenda.

Koremenos (2001) presented a general model of organizational flexibility, and flexibility was a major theme in the framework developed by Koremenos, Lipson, and Snidal (2001). Rosendorff and Milner (2001) applied this general framework to trade agreements. Their central insight is that uncertain environments require institutions that are more flexible. Because domestic economies are subject to exogenous shocks, a rigid trade agreements would force states to either pay a high domestic price to remain in the agreement, or to withdraw entirely in the face of large shocks. A more optimal agreement would recognize the presence of uncertainty and allow for temporary escape from commitments in hard economic times. Thus, we should see that trade agreements include numerous loopholes and escape clauses; and this is precisely what we observe.

Rosendorff (2015, p. 140) points out the widespread presence of explicit dispute-settlement procedures in trade agreements. He ties these procedures to the demands of domestic politics. He argues that these procedures allow member states to temporarily violate the overarching rules of trade agreements without immediate punishment. Thus, the procedures create an opportunity for “tolerated defection” (Rosendorff, 2005). Johns (2014) builds on this insight to argue that governments will demand more flexibility when trade agreements are “deeper,” requiring deep concessions of protectionist instruments.

Johns and Peritz (2015, p. 339) identify five core design elements in trade agreements: depth, scope, membership, rigidity, and institutionalization. In their discussion of rigidity, they not that even the most flexible agreements include limits on the duration and magnitude of escape provisions. In her work, Leslie Johns has also drawn attention to the information-providing functions of escape provisions. A state decision to go to dispute resolution is itself informative, particularly as the use of the mechanism involves costs—sometimes quite high costs in terms of technical expertise, time, and reputation. Johns (2012) also notes that the outcome of a dispute-resolution procedure is an informative coordination device, along the lines of judicial systems in any setting.

The impact of dispute-resolution procedures on state behavior is also an active research area. Busch and Pelc (2015) survey the literature and identify avenues for future research. They draw attention to the fact that the vast majority of cases are settled well before any type of retaliatory punishment is implemented. The high rate of early settlement is likely both efficient, and works to the advantage of the complaining state, compared to cases that go through the entire litigation process. Johns and Perth (2015) provide a formal analysis to illustrate how various elements of institutional design will influence state behavior. They argue that the specifics of design need to match the specifics of state interaction—there is no one-size-fits-all optimal design. In general, they find that the cost of leaving a treaty regime is a major determinant of appropriate institutional design.

Rosendorff (2015) summarizes the various ways in which institutional design interacts with domestic politics to influence state behavior. For example, he finds that larger and richer states use dispute-settlement mechanisms more often than smaller and poorer states; and that democracies are more likely to use more legalistic mechanisms. Thus, there is substantial evidence that institutional design does influence state behavior. However, all of these authors also note that empirical studies of effects suffer from a number of inferential challenges, such as selection effects and endogeneity. One extended study of institutional effects on behavior (Gray, 2013) finds strong evidence that design elements in fact have little real impact; what matters much more is the pattern of institutional membership. Improving empirical studies of these effects is a major challenge for the field.

Networks and Complexity in the Global Political Economy

The proliferation of IOs is the hallmark of globalization in the modern era. As discussed throughout this article, most studies of IOs continue to consider individual organizations in isolation. However, as IOs proliferate and as other organizational forms stake a claim in the global governance arena, analysts increasingly argue that focusing on an individual organization or regime is misleading. In order to understand the structure and effects of global governance in the modern political economy, we need to move beyond the fixation on individual organizations to consider how they interact with one another and create networks of rules, norms, and actors. Some analysts who consider this more holistic picture of global governance warn that conflicting rules and forum-shopping undermine rule-based orders. Others express fewer normative concerns, seeing the evolution of numerous organizational forms as part of a natural, somewhat predictable process. The fields of organizational ecology and evolutionary biology provide models for the analysis of these complex and growing networks.

Raustiala and Victor (2004) introduced the concept of “regime complex” in their study of the governance of plant genetic resources, an increasingly valuable commodity. They argue that it is misleading to study individual regimes in isolation from one another, because the density of regimes means that they partially overlap with one another. They describe a non-hierarchical complex of regimes that involves a number of different types of actors, ranging from government agencies to private experts. These actors create legal frameworks through their interactions, but because different actors participate in different parts of the complex, these frameworks often conflict with one another. And because the various regimes are not hierarchical or nested, there is no process in place for sorting out these legal inconsistencies. Marc Busch (2007) has identified forum-shopping as a problem for the international trade regime. Kim (2015, p. 373) also notes the growing complexity and tensions among regional trade agreements leading to “regulatory disarray,” and Johns and Peritz (2015) call for analysis of preferential trade agreements to move to the systemic level. Raustiala and Victor’s analysis suggests that as the institutional environment grows denser and more complex, this kind of forum-shopping could pervade the global political economy.

In contrast, Randall Henning (2017) sees regime complexity as a strategy used by states to control agency drift within individual agencies. Focusing on the euro crisis from 2010 to 2015, Henning confronts the apparently puzzling decision of European actors to bring the IMF into negotiations with EU members caught up in the crisis. He finds that involving multiple institutions in a particular problem creates conflict among them, and that leading states can then play the role of mediating such conflicts. Similar to Stone, Henning sees informal influence as key to the functioning of formal institutions. Also concentrating on the euro crisis but drawing a different lesson, Sergio Fabbrini (2015) calls for greater differentiation of institutional functions in order to preserve the goal of genuine economic and monetary union among states that desire it. Deborah Avant and Oliver Westerwinter (2016) extend this analysis of networks among IOs and other actors into the realm of security governance, similarly finding that the use of informal influence is a crucial determinant of the effectiveness of governance structures.

Abbott, Green, and Keohane (2016) draw on organizational ecology to model the proliferation of new types of actors in global governance. They note that the growth of formal international organizations has slowed, while the growth of new types of actors has sped up. They attribute this phenomenon to the dense institutional environment facing intergovernmental organizations, which constrains their growth. The more dynamic area of global governance involves new actors, such as informal institutions, trans-governmental networks, and private transnational regulatory organizations (PTROs). Concentrating on PTROs, Abbott, Green, and Keohane argue that they are much more flexible than formal intergovernmental organizations, and face much lower entry costs. Thus they are able to enter new niches and compete successfully for resources in those niches. Abbott, Green, and Keohane document the rapid growth of PTROs in recent decades.

Both Raustiala and Victor (2004) and Abbott, Green, and Keohane (2016) focus on the proliferation of new types of actors in global governance, and draw from organizational ecology and evolutionary biology to analyze them. Borrowing from these other disciplines is likely to provide a rich new set of analytical tools for understanding the complexity of the modern global political economy. However, we need to exercise care in the application of these tools, which were developed to study the natural world, to political economy. To illustrate this point, consider the analysis of new “types” in the two realms.

Charles Darwin, in his study of the natural world, posed an important question: Why do species exist (1859)? That is, why do we see, especially in the animal kingdom, distinct clusters of types who closely resemble one another, and large gaps between these types? Why not, instead, see continuous variation that would make it difficult to draw lines differentiating one species from another? This line of questioning has given rise to models of speciation. These models, in turn, fit with current theories of evolution as exhibiting punctuated equilibria, and help to explain large gaps in the fossil record.

Two processes in the natural world are important in explaining speciation. The first, on the structural side, is reproductive isolation. Populations of like individuals can become geographically split, either as a subgroup enters a new niche, or as some other event creates a barrier between members of the group. Responding to differing selective pressures in the two environments, or to different patterns of mutation, eventually the groups become so distinct that, if individuals are reintroduced to one another, they cannot breed. Most studies of speciation emphasize the importance of reproductive isolation, and Abbott, Green, and Keohane (2016) use a similar concept of a “niche” in their analysis.

However, geneticists have also pointed to the importance of sexual reproduction in speciation (Smith, 1983; Bernstein et al., 1985; Koeslag, 1995). Sexual reproduction leads to assortative mating, as the search for fit mates leads individuals to avoid potential mates who exhibit characteristics unusual for the species. Because of assortative mating, the “gaps” between species will not be filled in, leading to clearly distinct types and making the identification of species, as opposed to variants within species, relatively easy. In contrast, asexual reproduction, as seen in many flowering plants such as dandelions or raspberries, tends to create groups of individuals that do not exhibit large discontinuities. Classifying these organisms into species is difficult and contested.

These insights have implications for the study and evolution of global governance. Organizational forms in the global political economy do not live in genetic isolation, and they are more like dandelions than fruit flies in their reproductive processes. On the structural side, exchanges between institutions are constant. Individuals move back and forth, resources are shared, ideas bounce around, multiple institutions tackle the same problem, and successful innovations are copied by other institutions. In addition, the problems that institutions address are not neatly separated into niches, but overlap one another. Occasionally an institution does fall into a backwater and become isolated and irrelevant, with no impact on actual politics or on other institutions (Gray, 2015). However, these institutions do not tend to reproduce themselves. The norm is more like what is described in Raustiala and Victor (2004) or Abbott, Green, and Keohane (2016): a complex, ever-changing, interconnected web of different organizational forms. The structural conditions necessary to create distinct clusters of institutions neatly fitted to their ecological niches do not hold on the global level.

Similarly, the processes by which the institutions of global governance are produced and reproduced bear no analogy to sexual reproduction. A wide variety of processes create new institutions. Some, like the World Health Organization, are created de novo to address new problems. Others, like many regional development banks or bilateral investment treaties, are basically replications of a generic model tweaked to fit a specific set of countries. Others, like many UN agencies, are emanations that are spun off from existing international organizations. None of these processes have an affinity to sexual reproduction, and they do not seem likely to give rise to patterns that look like assortative mating. What we see, instead, is a mix of experimentation, mimicry, and institutional stickiness that creates a web of global governance without clear distinctions among types. While we expect a rough correlation between form and function, the evolution of global governance will never lead to neat matching between distinct problems and a unique organizational solution.

The increasing complexity of governance of the global political economy has given rise to a large number of new types of actors who interact with one another and create networks and complexes of governance. This process can create normative problems, such as legal inconsistencies and forum-shopping behavior. It may also exacerbate the moral hazard dilemma discussed earlier, as complexity can obscure chains of accountability. Other disciplines provide promising frameworks for the study of this new pattern of governance, but researchers need to exercise care in applying them to the political world; for example, they should not assume that the process of speciation in the natural world will map neatly onto an analysis of distinct types of organizational forms.

Conclusion

A dense network of international institutions characterizes the modern global economy. If we consider each institution in isolation, we can see the underlying strategic problem that drove states to create the institution, and to continue to operate within its strictures. These strategic dilemmas typically involve problems of bargaining, monitoring, and enforcement, and these challenges explain much about the role of IOs in the global political economy. However, current research on global governance pushes beyond this basic strategic characterization. One important theme involves the exercise of formal versus informal influence. Studies of informal influence suggest that it might not only permeate individual IOs, but extend to the network of governance institutions more generally. Another theme considers institutional design: both the drivers of design and its effects on state behavior. Scholars have explored this theme most actively in the area of trade agreements. Finally, the cutting edge of research on governance of the global economy argues that scholars need to move beyond the study of individual IOs to consider the proliferation of new actors and the nature of their interaction with one another. Much of this new work draws on models from other disciplines. These models are promising, but need to be applied with care and discretion. They suggest that institutions still matter a great deal, but we can only understand their effects if we consider their interactions and their strategic use by powerful state actors.

References

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