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Dunne, Kurki & Smith: International Relations Theories

Chapter 06

Neoliberalism

• Neoliberalism developed in response to the dilemma of how to explain patterns of cooperation in an anarchic world.  In order for states to cooperate, they must overcome a range of collective-action problems.  No external enforcement mechanism exists in the international system; therefore, any agreements must be self-enforcing.  This means states must avoid the temptation to cheat.

• International organizations (IO) can help reduce the incentives to cheat.  IOs can share information about the actions and preferences of other states, and also about the likely consequences of cheating on agreements. 

• The neoliberal perspective relies on an assumption of rationality.  That is, a core assumption of neoliberal theory is that states calculate the costs and benefits of different courses of action and choose the one which gives them the highest payoff.  Note that the assumption of rationality does not tell us anything about the content of actors’ preferences.

• Critics of neoliberal interventions from the early 1980s argued that neoliberalism bought into key assumptions of structural realism, in particular, their assumption that states were dominant actors and that domestic politics did not explain variations in state behaviour. 

• In the 1990s, neoliberal theory became deeper and richer.  The question of state compliance to international rules and regimes was subjected to greater empirical scrutiny.  So was the relationship between the purpose and form of the IO:  if the IO was designed to reduce the transaction costs of monitoring members’ behaviour, we would expect relatively centralised monitoring capacities and higher levels of autonomy from the member states.

• IOs play a crucial role in assuring that states uphold the agreements they sign up to.  Given that institutions do not have the power to compel actors to follow the rules, they rely on non-coercive instruments: 

  1. They provide a flow of reliable information as to whether an agreement is being complied with. 
  2. IOs have dispute-resolution capacity. 
  3. They structure bargaining according to an agreed set of rules, norms and decision-making procedures. 
  4. IOs can avoid the problem of encouraging moral hazard – such hazards can emerge if states suffering short-term problems are not required to reform their behaviour in ways that address the underlying causes of their short-term problems (for example, states in receipt of peacekeepers can use this public good to put off the need to negotiate).  IOs can address the moral hazard problem by imposing conditions on their assistance, attempting to force states to adopt more responsible policies.

• This basic strategic problem – potential benefits from assistance but a moral hazard problem – has led many scholars to use a principal-agent framework to study IOs.  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.  The question is then the extent to which IOs can pursue their own agenda, as opposed to responding to the specific demands of their principals.

• Case Study:  IMF Conditionality.  Let us assume a continuum of conditionality, with loose conditions on drawings at one end, and rigorous conditions at the other.  Assume also that IMF staff have a preference on this spectrum.  The main influence on IMF staff will be economic considerations as the staff are international civil servants and not representatives of any particular state. 

• Case Study continued. The case study shows that IMF staff have considerable agency when state preferences diverge, and in conditions when a crisis threatens the international financial system.  Unlike other approaches, neoliberalism is well equipped to explain variation in IMF autonomy over time.

• The international polity and economy are highly institutionalized.  The neoliberal approach to international politics provides a powerful explanation of this pattern and of the consequences of institutionalization.  Neoliberals adopt a contractual view that sees institutions as solutions to collective-action problems.

• At its core, the neoliberal study of IOs identifies the problems they seek to address.  These problems involve overcoming obstacles to bargaining, monitoring compliance with commitments, and enforcing agreements.  In the course of this analysis of institutions, neoliberal theory engages with important theoretical debates about institutional design, the relationship between power and rules, and the relative autonomy of institutions (as agents) from the leading member-states (or principals).