POLS2133 Study Guide - Final Guide: Champagne Fairs, High Middle Ages, Lex Mercatoria
(WK 2) NEOLIBERAL INSTITUTIONALIST APPROACHES TO IOs
Institution: a set of rules (known and shared by the community) that structure
interactions in specific ways
Introduction: Anarchy
Anarchy: the absence of an overarching authority that creates and enforces rules; no
‘world government’
-If you are unhappy the only one you can rely upon…is yourself (concept of “self-
help”)
Cooperation under anarchy
The theoretical premise of this course – and key IR theories – is the idea that amid
anarchy two actors have the potential to work together to achieve mutual benefits –
cooperation – but face various costs and risks making them reluctant to do so
So how can this cooperation problem be resolved? On the internet, eBay, Airbnb and
Uber all represent solutions to a cooperation problem. So do impromptu Facebook
groups carrying warnings about dodgy clothing websites.
What’s notable about consumer decisions to use these services is that we must give
up some autonomy by signing up, e.g. agree to rules and dispute resolution
procedures
The primary way that institutions promote cooperation is through enforcement, or the
imposing of punishments on actors who fail to cooperate
When institutions have means of imposing punishments for defection, they can
effectively enforce cooperation
Institutions at the international level generally lack the capacity to impose
punishments on states the international system is characterized by anarchy
Although most countries are governed by states – a central authority with the ability
to make and enforce laws within its boundaries – there is no such central authority at
the global level
The condition of anarchy means that international institutions do not generally
enforce cooperation among their members, but instead, cooperation at the
international level has to be self-enforcing
International institutions facilitate cooperation by making self-enforcement easier by:
1. Setting standards of behaviour
2. Verifying compliance
3. Reducing the costs of joint decision making
4. Resolving disputes
Why follow rules?
Some analysts argue that states ignore institutions whenever they do not serve their
interests, so the institutions we see merely reflect the current bargaining strength of
states and do not affect policy
International lawyers argue that when states do violate international rules it is more
often from a lack of capacity to live up their obligations than from an attempt to size
an advantage over athers
Actors comply with institutions for two reasons:
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1. For the broader cooperation they facilitate even though the outcome of those
particular rules is biased against them
-In these situations, the value of the cooperation created by the
institution outweighs the costs of a relatively disadvantageous bargain
-E.g. states observe the rules of the WTO not just because other
countries might be authorized to punish them for violations but also
because the wider system of free trade that the WTO supports and promotes
is of great benefit to them
2. Actors comply with institutions because they are already in place and often
cheaper to use, even if they are biased, than are the costs of creating a brand-new
institution that might more fully reflect their interests
-In the case of an existing institution, the costs of creating a set of
rules have already been paid – whilst the costs of any new institutions,
however better suited to the matter now under discussion, would have to be
paid anew
-If policy bias of an institution is not too large – actors may choose to
work within the existing rules rather than create new ones from scratch
-If the policy bias is too large – actors will choose to disband the
institution/ignore it/reform it
-Essentially – it is recognised often that maintaining the institution
isn’t ideal, but less costly than creating a new one
Institutions are the rules of the political game, valued and respected for the
cooperation they facilitate. However they aren’t a cure-all for problems of international
cooperation when the temptation to defect becomes too large or the fear of being taken
advantage of grows too severe – countries will violate the rules
Interstate cooperation
States must also give something up to act collectively. This course is not about
studying one particular mechanism that may (or may not) help states cooperate: the
IO
The fundamental questions of this course:
1. Rationale: Why would states ever agree to form IOs and be willing to adhere to
their rules and procedures?
2. Efficacy: When and how are IOs able to influence the behaviour of their masters
– states – in an anarchic environment?
The point of this course: is to understand the rationale and efficacy of states’
creation of international organisations as a solution to various cooperation problems
Cooperation In An Anarchic System: The Champagne Fairs
Trading in an anarchic system
Buying clothing on Facebook shares significant features with the trading landscape
facing merchants the Middle Ages
Milgrom, North and Weingast (1990): Traders worry about transacting with
dishonest actors. However, one can ensure honest behaviour by establishing a
“continuing relationship”, the relationship itself becomes a valuable asset because it
helps facilitate further (beneficial trade).
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In a community where people meet rarely, an individual’s reputation serves as her
bond for good and honest behaviour; and collective action only happens if both sides
see the other as honest.
Puzzle: why then do we need institutions? Why isn’t reputation sufficient?
The ‘olden days’ (High Medieval period)
Basic story: During the High Middle Ages (-1100s), there were no states to enforce
contracts (or, for that matter, to protect merchants from pirates and brigands). No
established body of commercial law, obviously.
Eventually this would be provided by nation-states, but they were centuries away. In
the meantime, economic growth still needed specialisation (Adam Smith!), and
specialisation only works if you trade with others from outside your town (and
perhaps very far away).
But with no one to enforce good behaviour (anarchy!!) the authors tell a story of how
an informal institution arose to facilitate trade (a type of collective/cooperative
action).
Champagne Fairs and the Law Merchant
The hub of ‘international’ trade was the Champagne Fairs in France (leather, fur,
textiles, spices), where merchants brought samples of their goods to trade, promising
to complete the transaction later.
Prior to the revival of trade in the early middle ages, few institutions underpinned
commercial activity – there was no state to enforce contracts, let alone to protect
merchants from pirates and brigands
However in contrast, modern Western economies possess highly specialized systems
of enforcing contracts and protecting merchants, resulting in widespread geographic
specialization and impersonal exchange
A number of problems had to be resolved in order to support the expansion of trade:
1. As trading communities grew larger became harder within each
community for merchants to monitor one another’s behaviour new institutions
were required to mitigate the types of cheating accorded by the new situation
2. As trade grew among different regions institutions were needed to prevent
defaulting by merchants who might cheat in one location, never to be seen again
The system of lawyers was widely used to register the existence of certain types of
contracts and obligations – were typically used for long-term contracts such as those
for apprenticeships, sales of land, and partnerships
However the extensive use of lawyers in certain areas to register agreements suggests
that reputation via word of mouth alone was insufficient to support honest behaviour
and that a third party without any binding authority to enforc2e obligations was
nonetheless quite valuable for promoting honest exchange
The Law Merchant enforcement system works by making the reputation system of
enforcement work better
Question: “What prevents a merchant from cheating by supplying lower quality
goods than promised, and then leaving the Fairs before being detected?” (Pp. 5-6).
Solution: Merchants evolved their own private code of laws (the Law Merchant)
with disputes adjudicated by a judge (local official, private merchant)
But judges had limited power to enforce judgements against merchants from distant
places. So why do it?
The Law Merchant system of judges and reputations was eventually replaced by a
system of state enforcement – typically in the late middle ages or the early modern
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Document Summary
Institution: a set of rules (known and shared by the community) that structure interactions in specific ways. Anarchy: the absence of an overarching authority that creates and enforces rules; no. If you are unhappy the only one you can rely upon is yourself (concept of self- help ) Uber all represent solutions to a cooperation problem. So do impromptu facebook groups carrying warnings about dodgy clothing websites. What"s notable about consumer decisions to use these services is that we must give up some autonomy by signing up, e. g. agree to rules and dispute resolution procedures. The primary way that institutions promote cooperation is through enforcement, or the imposing of punishments on actors who fail to cooperate. When institutions have means of imposing punishments for defection, they can effectively enforce cooperation. Institutions at the international level generally lack the capacity to impose punishments on states the international system is characterized by anarchy.
