All Politics Is Global: Explaining International Regulatory Regimes [NOOK Book]

All Politics Is Global

Princeton University Press

Chapter One

Globalization is responsible for a lot of bad international relations theory.

The poor state of theorizing is not because economic globalization is irrelevant. The reduction of traditional barriers to exchange, such as tariffs and capital controls, has introduced a bevy of new conflicts over the residual impediments to global economic integration-the differences among domestic rules and regulatory standards. The affected issue areas include but are not limited to labor standards, environmental protection, financial supervision, consumer health and safety, competition policy, intellectual property rights, and Internet protocols. These differences matter: the Organization for Economic Cooperation and Development (OECD) estimates that these standards and regulations affect approximately $4 trillion in traded goods. At the start of the new millennium, these issues have been important enough to trigger an increase in the foreign affairs budgets for U.S. regulatory agencies even as the State Department's budget declined.

Regulatory issues are important in and of themselves. They matter in world politics because of the way theyaffect the distribution of resources as well. Fundamentally, however, international regulatory regimes strike a political chord because they symbolize a shift in the locus of politics. The title of this book is a play on Tip O'Neill's well-known aphorism that "all politics is local." In the current era, this statement is at least open to question. For many issues that comprise the daily substance of our lives-how to treat workers, how much to pollute, what can go into our food, what can be accessed on the Internet, how much medicine will cost-the politics have gone global.

The proliferation of new global issue areas has increased scholarly attention on how the global economy is regulated in an era of globalization. However, the theoretical debates on this topic leave much to be desired; Miles Kahler and David Lake recently concluded, "Contemporary scholarship ... has yielded only a partial, unsystematic, and ultimately inconclusive body of theorizing on the relationship between globalization and governance."

Most strands of research on this topic share a common assumption-the decline of state autonomy relative to other factors and actors. Globalization undercuts state sovereignty, weakening a government's ability to effectively regulate its domestic affairs. Global market forces are powerful enough to deprive governments of their autonomy and agency. As Thomas Friedman phrases it, globalization binds states into the "Golden Straitjacket," forcing them to choose between "free market vanilla and North Korea." Prominent pundits, policymakers, and scholars echo the assertion that globalization drastically reduces the state's ability to govern. At the same time that state autonomy is in decline, other theorists argue that globalization empowers a web of nonstate actors, including multinational corporations, nongovernmental organizations (NGOs), and transnational activist networks. Some theorists go so far as to assert that globalization requires a wholesale rejection of existing theoretical paradigms. The trouble with this belief is the lack of variation in the independent variable and the presence of variation in the dependent variable. According to these narratives, globalization increases the number and power of factors and actors that inexorably promote policy convergence, forcing states into agreement on regulatory matters. The problem with this scenario is that there are a number of regulatory issue areas-data privacy, stem cell research, global warming, genetically modified foods-where regulatory convergence has been limited at best. Structural theories lack the capacity to explain variation in coordination outcomes.

This book argues that the great powers-defined here as governments that oversee large internal markets-remain the primary actors writing the rules that regulate the global economy. The key variable affecting global regulatory outcomes is the distribution of interests among the great powers. A great power concert is a necessary and sufficient condition for effective global governance over any transnational issue. Without such a concert, government attempts at regulatory coordination will be incomplete, and nonstate attempts will prove to be a poor substitute.

A few complexities are contained within this simple argument. For example, when will the great powers agree to coordinate their regulatory standards? I argue that globalization increases the rewards for policy coordination, but has a negligible impact on the adjustment costs of coordination. Whether regulatory coordination takes place is a function of the adjustment costs actors face in altering their preexisting rules and regulations. When the adjustment costs are sufficiently high, not even globalization's powerful dynamics can push states into cooperating.

Adjustment costs are a function of the ability of the affected domestic actors to use exit rather than voice in reacting to the impact of regulatory coordination. The more that domestic groups have invested in the status quo, the greater their costs of exit. Private actors with constrained exit options have a strong incentive to invest in assets specific to longstanding domestic legal and regulatory structures; these specific assets increase the economic and political costs of regulatory coordination. The less viable the exit option, the more that political voice is used, and the greater the political and economic adjustment costs. These costs will be high when the regulatory issue in question affects relatively immobile or mature sectors or markets-the regulation of land, labor, or consumer products. Ironically, the least globalized elements of great power polities exert the strongest effect on the likelihood of global regulatory coordination.

Smaller states and nonstate actors in the international system do not affect regulatory outcomes, but they do affect the processes through which coordination is attempted. The reason their effect on the process is irrelevant to the outcome is that global governance processes are substitutable. Powerful states can and will engage in forum-shopping within a complex of international regimes. They can and will use different policy tools to create those structures, depending on the constellation of state interests. Options include delegating regime management to nonstate actors; creating international regimes with strong enforcement capabilities; generating competing regimes to protect material interests; and unilateral, extraterritorial measures to establish regional spheres of influence. The preferences and actions of other states and nonstate actors will constrain certain great power strategies, however.

While relative power remains the salient fact in determining regulatory outcomes at the systemic level, it is of little importance in determining great power preferences. The result is a "revisionist" theory that resembles Jeff Legro and Andrew Moravcsik's "two-step" approach to international relations theory. The first step is identifying the domestic actors and institutions that explain the origin of state preferences. The second step is to take those preferences as given for international interactions, and to explain the bargaining outcomes as a function of the distribution of interests and capabilities. Domestic factors account for preference formation, but not the outcomes of international bargaining. That is how the theory will be developed here.

Why This Matters

The regulation of the global economy is intrinsically important. Markets rely on rules, customs, and institutions to function properly. Global markets need global rules and institutions to work efficiently. The presence or absence of these rules, and their content and enforcement, is the subject of this book. In a globalizing economy, what are the rules? Who makes them? How are they made?

The answers to these questions matter to policymakers and publics alike. Policymakers have to deal with an ever-increasing amount of regulatory questions. The number of national regulatory agencies has exploded during the current era of globalization. The street protests that started at the World Trade Organization (WTO) Ministerial meeting in Seattle in 1999 have spread to almost every significant meeting of a multilateral economic institution. They are a testament to the passions that globalization arouses. This should not be surprising. Some of the most contentious issues in world politics over the past decade-financial contagion, global warming, genetically modified foods, terrorist financing, sweatshop labor-are, at their core, regulatory disputes.

The September 11, 2001 terrorist attacks and their aftermath only increased the salience of these issues. The United States considers it vital to develop stringent global standards to block terrorist financing and monitor shipping containers. The possibility of bioterror attacks increases the demand for states to coordinate their environmental and food safety regulations. The use of the Internet by terrorist networks to communicate with one another has raised the question of how governments can effectively patrol cyberspace without choking off e-commerce. More generally, the U.S. response has highlighted the philosophical disagreements between Americans and Europeans over the proper modes of global governance. The 9/11 attacks did not reduce the questions raised by the globalization of national economies; they highlighted how the globalization of national security also generates demands for regulatory coordination.

Scholarly work in this area is necessary in part because the popular discourse on the subject has been dreadful. If it is true that public intellectuals earn more attention from being spectacularly wrong than from drawing an accurate, complex picture of the world, then "pop globalization" writers have certainly garnered attention. Consider Thomas Friedman's aforementioned assertion that globalization acts as a Golden Straitjacket. This description is simple, pithy, and wrong. The persistent diversity of capitalist systems around the world contradicts Friedman's claims about the binding constraints of free market capitalism. Surveys of financial traders undercut Friedman's belief that an "Electronic Herd" runs roughshod over every facet of government intervention in the economy. Globalization does not even force firms in the same sector to compete in the same way. Friedman, like most other popular writers on this subject, offers a simple model of economic determinism-in which the interests of transnational capital dominate all other considerations-to explain how globalization works. This approach does not hold up to careful scrutiny. What is truly scary, however, is that Friedman is an oasis of clarity compared with other popular explanations proffered about globalization and global governance. This popular discourse has helped to fuel public anxieties about the future of globalization and global governance. In the United States, globalization prompts fierce domestic debates. Polling data reveals that U.S. citizens believe the integration of the United States with the rest of the world has greatly constrained U.S. policy autonomy, creating ambivalence about further international integration. In the European Union, globalization has been inexorably linked to Americanization, which has not endeared the concept to a majority of its citizens. The anxiety about globalization and global governance is even greater in the rest of the world, since other countries are far more dependent on the global economy than the United States. Global public opinion surveys demonstrate majority support in the developing world for capitalism-but want it to be accompanied by "strong government regulations." Just as the questions raised in this book matter greatly to public discourse, they also affect scholarly debates about the international political economy (IPE). Fifteen years ago, the study of IPE was essentially limited to explaining the variations in the global rules governing merchandise trade, exchange rates, and foreign direct investment (FDI). That was then. The latest era of globalization has raised a plethora of new issues to explain. Can existing IPE paradigms explain the variation of outcomes within and across these new issue areas-or are new paradigms needed?

This study also provides clues to the relationship between states and non-state actors. The debate about the relevance of nonstate actors is not new, but the current era of globalization has intensified the arguments. Some scholars exaggerate the impotence of the state, interpreting a failure to perfectly regulate a sphere of social life as an example of a general retreat of the Westphalian system. However, statists have fallen into the same trap, gleefully pointing out the vast areas of world politics where nonstate actors have minimal influence. Both sides tend to generalize from their most favorable cases. The model presented here suggests that states, particularly the great powers, remain the primary actors, but that they will rely on nonstate actors for certain functional purposes. At the same time, nonstate actors can, on occasion, jump-start regulatory agendas to advance their issues-even if the final outcome does not accord with their preferences.

Beyond the study of global political economy, the topic of regulatory coordination raises theoretical questions about global governance that affect a wide variety of debates among international relations theorists. The questions asked in this book address arguments by globalization scholars that the changes wrought on world politics in the past twenty years require completely new theories of international relations. They affect debates in international relations and international law over the extent to which global governance structures can alter or constrain state behavior. At the deepest level, resolving how globalization affects governance wrestles with the fundamental question about whether anarchy is a constant or a variable. For some issue areas, effective global governance means the transfer of authority from the national to the supranational. At what point does global regulatory governance become so routine that the global economy ceases to be anarchical?

Defining Terms

In Leviathan, Thomas Hobbes argued that the key step in political science was the formulation of precise terms. That statement applies with a vengeance to the study of global economic regulation. A major reason for the contentious nature of debates about globalization and global governance is the disagreements over the precise meaning of terms. For example, the word "globalization" has been used so frequently to describe so many disparate phenomena that the term has been stripped of any concrete meaning. What one scholar finds important about globalization another will dismiss as irrelevant. Susan Strange argued that a chief deficiency of international political economy was the use of imprecise language; "the worst of them all is 'globalisation'-a term which can refer to anything from the Internet to a hamburger." A dictionary of international relations agrees: "the term is imprecise and its use is often heavily laden with ideological baggage." A different criticism is that the current jargon is merely old wine in new bottles. What is the difference, for example, between globalization and interdependence? How does the concept of global governance differ from international regimes? Before proceeding, clear definitions are needed.

(Continues...)

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Excerpted from All Politics Is Global by Daniel W. Drezner Copyright © 2007 by Princeton University Press. Excerpted by permission.
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