International Relations, Modeling

Some Quick Thoughts on Economics in International Relations Theory

The other day I was reviewing some of the older literature on international politics and relations.  From the vantage point of a few of decades, the injection of economics into international relations and its influence is obvious.  The major debates that largely pivoted around Ken Waltz’s neorealism and Robert Keohane’s neoliberalism essentially reflected alternative applications of models and methods imported from economics, perhaps most brilliantly exemplified by Keohane’s adaptation of Akerlof’s market for lemons in order to argue for the importance of institutions (or regimes as he defined them in After Hegemony).

The market model of international relations has, of course had several problems.  First, states and firms are not equivalent entities with respect to their collective interests or capacity for collective action.  Normal market dynamics attach little concern for firms that go out of business, as the rise and fall of firms is viewed as a normal part of businesses and an essential aspect of economic life—the ecology of firms is always in flux, keeping the economic system as a whole vibrant and innovative.  By contrast, the rise and demise of states is generally a painful process that violates normative considerations of the public good, safety and security.  It is difficult to find authors that generally propose the international system is improved by the constant formation and dissolution of states as political entities—even if they favor changing the governments within in.  As events in Iraq, Afghanistan, Egypt, Yemen, Libya, Syria and Palestine are demonstrating, state formation and collapse is a protracted violent business, where national, organizational, and even personal interest clash and are asserted by the threat and application of force.

Another implication of the market model that equates states to firms is the way in which the concept of hierarchy and authority have been confused, much to the detriment of theory building.  Specifically, envisioning states as firms with clearly identifiable lines of authority and responsibility within them but not between them masks the ways in which the international system is in fact a hierarchical, complex system.  Waltz’s Theory of International Politics set the tone for defining hierarchy in such as fashion, and this treatment has largely stuck, erroneously equating hierarchy with the centralization of authority and the simplification of the system.  Such a definition stands in stark contact with the definition of hierarchy in other disciplines, where hierarchy refers to specialization, interdependence, and complexity (best articulated in Herbert Simon’s Sciences of the Artificial).  For example, increasingly complex economies result from the division and specialization of labor, biological organisms become increasingly complex as cells specialize into specialized organs performing interdependent functions, etc.  Domestic politics may be more complex and hierarchical than international politics due to the fact that transaction costs tend to be lower and greater coordination between specialized actors (whether by internal markets or government command) is possible due to a shared legal framework, common cultural norms, etc.  Strong, centralized, settled politics may be correlated with stable domestic political arrangements, but the character of hierarchy in domestic political systems is not the government’s authority per se, but the development and sustained coordination of specialists capable of meeting the political, economic, and social needs of the state.

Another interesting point regarding the difference between government and private sector organizations was made in Richard Posner’s Uncertain Shield, which examined the recommendations of the WMD Commission with respect to reforming the US intelligence community.  Posner argued that governments and firms are both susceptible to same organizational pathologies and conservatism.  However, because firms are permanently and perpetually engaged in the marketplace, constantly competing and receiving feedback as to how their products and services are performing, they are faster to adapt, making corrective changes to the organization and behavior than are states because the major problems that states confront, at least from the national security point-of-view, occur infrequently and feedback is often infrequent, clouded, ambiguous, and often deliberately misleading and deceptive.  Thus, government organizations may be more likely to become ossified and mired in old ways of doing business simply because of the irregularity and ambiguity of the feedback they receive.  Again, these differences suggest that that firms and states reside within different competitive and information environments that may render market models inappropriate for political use.

Finally, comparisons of the international system with markets may not be as straightforward as equating states with firms.  After all, firms are normally seen as producers in a competition to attract customers, the implication being that consumers always have a choice in firms to patronize, unless monopolistic conditions emerge.  In the international system, however, states are both the producers and consumers of their security, and consumers, nominally their citizens, are largely captive audiences.  It is easy to assume that states are in the business of producing security (or insecurity if they are classified as revisionist or expansionist), but this analogy breaks down once models of market behavior and firms attempt to substitute economic variables and entities with political ones.

There are certainly many other ways in which market theories have crept into international relations.  I’ve grown to believe that we have likely squeezed out the major benefits of importing them, and have become too accepting of their assumptions, e.g. rationality and utility maximization, which have themselves come under attack in economics—indeed, the ongoing series of global economic crises are the equivalent to the end of the Cold War, casting into doubt the conclusions of a generation scholars, commentators, and policymakers who have awoken to find that they are living in a world of theoretical impossibility.  Ironically, economists have started to turn to biology, particularly evolution and ecology, for inspiration.  In doing so, greater attention has been given to the persistent influences of history and path dependence, geographic space and patterns, learning, identity, and more complex patterns of interaction that allow for the development and sustainment of niches.  It is likely that international relations theory would reap significant rewards by following economics in this venture, and look seriously at applying evolutionary and ecological concepts to the international system (rather than waiting for them to permeate economics first).  Indeed, groups like the Natural Security group and those that I’ve dealt with at IIASA and SFI have started to explore these ideas.  With any luck, the next few decades of international relations theory may be as fruitful and transformative as those that followed the importing of economic concepts and principles in the past.


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