International regimes,transactions,and change 383 bedded liberalism,''which I show to differ from both its classical ancestor and its ignominious predecessor even as it has systematically combined central features of both. My second theoretical argument concerns the relationship between in- ternational economic regimes and developments in the international econ- omy,particularly at the level of private transaction flows.12 Conventional structural arguments,whether Realist or Marxist,see transnationalization as a direct reflection of hegemony:high levels of trade and capital flows obtain under the pax Britannica and the pax Americana.The regimes for trade and money are largely epiphenomenal adjuncts that may be invoked to legitimate this outcome,but they have little or no real bearing on it.Conventional lib- erals,on the other hand,hold that high levels of trade and capital flows will obtain only if there is strict adherence to open international economic re- gimes,so that these become virtually determinative.Neither formulation is satisfactory. The relationship between economic regimes and international transac- tion flows is inherently problematical,because the domain of international regimes consists of the behavior of states,vis-a-vis one another and vis-a- vis the market-place,not the market-place itself.Nevertheless,simply on a priori grounds we may argue that because there is no direct relation- ship,it is highly unlikely that the character of international regimes would have a determinative impact on international transaction flows;and yet, because international regimes do encompass the behavior of states vis- a-vis the market-place,it stands to reason that they would have some effect on international transaction flows.I contend that the nature of this relation- ship,at least in the first instance,is one of complementarity.That is to say, international economic regimes provide a permissive environment for the emergence of specific kinds of international transaction flows that actors take to be complementary to the particular fusion of power and purpose that is embodied within those regimes.13 The contextual specificity of this com- plementarity makes equations of the variety"pax Britannica is equal to pax Americana,''as well as insistence on universal regime formulae to achieve a given outcome,extremely dubious propositions. Applying this argument to the postwar international economic order,I conclude that the emergence of several specific developments in transna- tional economic activities can be accounted for at least in part by their per- ceived first-order contribution to the regimes for trade and money.14 These regimes,then,are neither determinative nor irrelevant,but provide part of the context that shapes the character of transnationalization. i In this connection,see also Charles Lipson's chapter in this volume. 1 This is not to ignore the possibility that the same developments may have second-order consequences or long-term effects that pose stresses or even contradictions for international economic regimes,a problem which I take up in a later section. 14 The present formulation of this conclusion owes much to Albert Fishlow's commentary on an earlier version at the Palm Springs Conference,for which I am obliged to him
International regimes, transactions, and change 383 bedded liberalism," which I show to differ from both its classical ancestor and its ignominious predecessor even as it has systematically combined central features of both. My second theoretical argument concerns the relationship between international economic regimes and developments in the international economy, particularly at the level of private transaction flows.12 Conventional structural arguments, whether Realist or Marxist, see transnationalization as a direct reflection of hegemony: high levels of trade and capital flows obtain under the pax Britannica and the pax Americana. The regimes for trade and money are largely epiphenomena1 adjuncts that may be invoked to legitimate this outcome, but they have little or no real bearing on it. Conventional liberals, on the other hand, hold that high levels of trade and capital flows will obtain only if there is strict adherence to open international economic regimes, so that these become virtually determinative. Neither formulation is satisfactory. The relationship between economic regimes and international transaction flows is inherently problematical, because the domain of international regimes consists of the behavior of states, vis-a-vis one another and vis-avis the market-place, not the market-place itself. Nevertheless, simply on a priori grounds we may argue that because there is no direct relationship, it is highly unlikely that the character of international regimes would have a determinative impact on international transaction flows; and yet, because international regimes do encompass the behavior of states visa-vis the market-place, it stands to reason that they would have some effect on international transaction flows. I contend that the nature of this relationship, at least in the first instance, is one of complementarity. That is to say, international economic regimes provide a permissive environment for the emergence of specijic kinds of international transaction flows that actors take to be complementary to the particular fusion of power and purpose that is embodied within those regimes.13 The contextual specificity of this complementarity makes equations of the variety "pax Britannica is equal to pax Americana," as well as insistence on universal regime formulae to achieve a given outcome, extremely dubious propositions. Applying this argument to the postwar international economic order, I conclude that the emergence of several specific developments in transnational economic activities can be accounted for at least in part by their perceived first-order contribution to the regimes for trade and money.14 These regimes, then, are neither determinative nor irrelevant, but provide part of the context that shapes the character of transnationalization. I2 In this connection, see also Charles Lipson's chapter in this volume. l3 This is not to ignore the possibility that the same developments may have second-order consequences or long-term effects that pose stresses or even contradictions for international economic regimes, a problem which I take up in a later section. l4 The present formulation of this conclusion owes much to Albert Fishlow's commentary on an earlier version at the Palm Springs Conference, for which I am obliged to him
384 International Organization My third theoretical argument concerns the occurrence of change in and of regimes.The prevailing model postulates one source of regime change, the ascendancy or decline of economic hegemons,and two directions of re- gime change,greater openness or closure.If,however,we allow for the possibility that power and purpose do not necessarily covary,then we have two potential sources of change and no longer any simple one-to-one corre- spondence between source and direction of change.For example,we could have a situation in which there exists a predominant economic power whose economic program differs fundamentally from that of its leading rivals(e.g., Dutch supremacy in the 17th century).Or,we could have a situation in which power and purpose covary negatively,that is,in which neither a hegemon nor a congruence of social purpose exists among the leading economic pow- ers(the interwar period approximates this case).We could have a situation in which power and purpose covary positively (e.g.,Bretton Woods).There remains the situation of no hegemon but a congruence of social purpose among the leading economic powers (albeit imperfectly,the post-1971 in- ternational economic order illustrates this possibility). It is the last possibility that interests me most.It suggests the need for a more nuanced formulation of regime change than is currently available.If and as the concentration of economic power erodes,and the "strength''of international regimes is sapped thereby,we may be sure that the instruments of regimes also will have to change.15 However,as long as purpose is held constant,there is no reason to suppose that the normative framework of regimes must change as well.In other words,referring back to our analytical components of international regimes,rules and procedures (instruments) would change but principles and norms (normative frameworks)would not. Presumably,the new instruments that would emerge would be better adapted to the new power situation in the international economic order.But insofar as they continued to reflect the same sense of purpose,they would represent a case of norm-governed as opposed to norm-transforming change. Applying this argument to the post-1971 period leads me to suggest that many of the changes that have occurred in the regimes for money and trade have been norm-governed changes rather than,as is often maintained, reflecting the collapse of Bretton Woods and a headlong rush into mercan- tilism.Indeed,in certain cases earlier acts by the hegemon had violated the normative frameworks of these regimes,so that some post-1971 changes may be viewed as adaptive restorations of prior sets of norms in the context of a new and different international economic environment.Both occur- rences may to taken to demonstrate what we might call "the relative au- tonomy''of international regimes (with due apologies to the appropriate quarters). The various parts of my argument clearly stand or fall together.Ulti- 1sThe"hegemonic stability'school effectively demonstrates why this is so.See Keohane, Theory of Hegemonic Stability
384 International Organization My third theoretical argument concerns the occurrence of change in and of regimes. The prevailing model postulates one source of regime change, the ascendancy or decline of economic hegemons, and two directions of regime change, greater openness or closure. If, however, we allow for the possibility that power and purpose do not necessarily covary, then we have two potential sources of change and no longer any simple one-to-one correspondence between source and direction of change. For example, we could have a situation in which there exists a predominant economic power whose economic program differs fundamentally from that of its leading rivals (e.g., Dutch supremacy in the 17th century). Or, we could have a situation in which power and purpose covary negatively, that is, in which neither a hegemon nor a congruence of social purpose exists among the leading economic powers (the interwar period approximates this case). We could have a situation in which power and purpose covary positively (e.g., Bretton Woods). There remains the situation of no hegemon but a congruence of social purpose among the leading economic powers (albeit imperfectly, the post-1971 international economic order illustrates this possibility). It is the last possibility that interests me most. It suggests the need for a more nuanced formulation of regime change than is currently available. If and as the concentration of economic power erodes, and the "strength" of international regimes is sapped thereby, we may be sure that the instruments of regimes also will have to change.15 However, as long as purpose is held constant, there is no reason to suppose that the normative framework of regimes must change as well. In other words, referring back to our analytical components of international regimes, rules and procedures (instruments) would change but principles and norms (normative frameworks) would not. Presumably, the new instruments that would emerge would be better adapted to the new power situation in the international economic order. But insofar as they continued to reflect the same sense of purpose, they would represent a case of norm-governed as opposed to norm-transforming change. Applying this argument to the post-1971 period leads me to suggest that many of the changes that have occurred in the regimes for money and trade have been norm-governed changes rather than, as is often maintained, reflecting the collapse of Bretton Woods and a headlong rush into mercantilism. Indeed, in certain cases earlier acts by the hegemon had violated the normative frameworks of these regimes, so that some post-1971 changes may be viewed as adaptive restorations of prior sets of norms in the context of a new and different international economic environment. Both occurrences may to taken to demonstrate what we might call "the relative autonomy" of international regimes (with due apologies to the appropriate quarters). The various parts of my argument clearly stand or fall together. Ultil5 The "hegemonic stability" school effectively demonstrates why this is so. See Keohane, "Theory of Hegemonic Stability
International regimes,transactions,and change 385 mately,they lead back to my depiction of international authority as reflect- ing a fusion of power and legitimate social purpose.An historical illustration of this interpretation of the"'structure''of international authority therefore serves as my point of departure. 1.The structure of international authority Karl Polanyi's magisterial work,The Great Transformation,was first published in 1944.In it,he developed a distinction between "embedded'' and "'disembedded''economic orders:"normally,the economic order is merely a function of the social,in which it is contained.Under neither tribal, nor feudal,nor mercantile conditions was there,as we have shown,a sepa- rate economic system in society.Nineteenth century society,in which eco- nomic activity was isolated and imputed to a distinctive economic motive, was,indeed,a singular departure.''16 The best known international forms taken by this"'singular departure''were,of course,the regimes of free trade and the gold standard.What were their bases? The internationalization of domestic authority relations Charles Kindleberger,who is justly accorded a leading role in having established the efficacy of the "hegemonic stability''model in his book on the Great Depression,17 subsequently managed to write an account of the rise of free trade in western Europe without even mentioning British eco- nomic supremacy as a possible source of explanation.18 He focused instead on a fundamental reordering of the relationships between domestic political authority and economic processes.Free trade,he reminds us,was due first of all to the general breakdown of the manor and guild system and the so-called policy of supply,through which a complex structure of social regulations rather than market exchange determined the organization of economic activity at home and abroad.Indeed,the earliest measures under- taken in order to free trade were to dismantle prohibitions on exports,pro- hibitions that had restricted the outward movement of materials,machinery, and artisans.The bulk of these prohibitions was not removed until well into the 1820s and 1830s,and in some instances even later.A second part of the stimulus"'came from the direct self-interest of particular dominant groups. Boston:Beacon Press,1944,p.71.The historical claims are backed up in Polanyi et al., eds.,Trade and Markets in the Early Empires (Glencoe,Ill.:Free Press,1957). 17 Charles P.Kindleberger,The World in Depression,1929-1939 (Berkeley:University of California Press,1973),esp.chaps.1 and 14. 1s"The Rise of Free Trade in Western Europe,1820-1875,"Journal of Economic History 35 (March1975):20-55
International regimes, transactions, and change 385 mately, they lead back to my depiction of international authority as reflecting a fusion of power and legitimate social purpose. An historical illustration of this interpretation of the "structure" of international authority therefore serves as my point of departure. 1. The structure of international authority Karl Polanyi's magisterial work, The Great Transformation, was first published in 1944. In it, he developed a distinction between "embedded" and "disembedded" economic orders: "normally, the economic order is merely a function of the social, in which it is contained. Under neither tribal, nor feudal, nor mercantile conditions was there, as we have shown, a separate economic system in society. Nineteenth century society, in which economic activity was isolated and imputed to a distinctive economic motive, was, indeed, a singular departure."16 The best known international forms taken by this "singular departure" were, of course, the regimes of free trade and the gold standard. What were their bases? The internationalization of domestic authority relations Charles Kindleberger, who is justly accorded a leading role in having established the efficacy of the "hegemonic stability" model in his book on the Great Depression,I7 subsequently managed to write an account of the rise of free trade in western Europe without even mentioning British economic supremacy as a possible source of explanation.ls He focused instead on a fundamental reordering of the relationships between domestic political authority and economic processes. Free trade, he reminds us, was due first of all to the general breakdown of the manor and guild system and the so-called policy of supply, through which a complex structure of social regulations rather than market exchange determined the organization of economic activity at home and abroad. Indeed, the earliest measures undertaken in order to free trade were to dismantle prohibitions on exports, prohibitions that had restricted the outward movement of materials, machinery, and artisans. The bulk of these prohibitions was not removed until well into the 1820s and 1830s, and in some instances even later. A second part of the stimulus "came from the direct self-interest of particular dominant groups. l6 Boston: Beacon Press, 1944, p. 71. The historical claims are backed up in Polanyi et al., eds., Trade and Markets in the Early Empires (Glencoe, Ill.: Free Press, 1957). l7 Charles P. Kindleberger, The World in Depression, 1929-1939 (Berkeley: University of California Press, 1973), esp. chaps. 1 and 14. l8 "The Rise of Free Trade in Western Europe, 1820-1875," Journal of Economic History 35 (March 1975): 20-55
386 International Organization ."19 In the Netherlands,these were merchants,shipowners,and bankers; in Great Britain,the manufacturing sectors backed by the intellectual hegemony established by the Manchester School;in France,largely indus- trial interests employing imported materials and equipment in production, though they would not have succeeded against the weight of countervailing interests had not Louis Napoleon imposed free trade for unrelated reasons of international diplomacy;in Prussia,grain and timber exporters,though Bismarck was not adverse to using trade treaties in the pursuit of broader objectives and free trade treaties seemed to be au courant;in Italy,the ef- forts of Cavour,which prevailed over disorganized opposition.Equally par- ticularistic factors were at work in Belgium,Denmark,Norway,Sweden, Spain,and Portugal.But how did such diverse forces come to converge on the single policy response of free trade?In a certain sense,Kindleberger contends,Europe in this period should be viewed not as a collection of sepa- rate economies,but "as a single entity which moved to free trade for ideological or perhaps better doctrinal reasons.'2 The image of the market became an increasingly captivating social metaphor and served to focus di- verse responses on the outcome of free trade.And unless one holds that ideology and doctrine exist in a social vacuum,this ascendancy of market rationality in turn must be related to the political and cultural ascendance of the middle classes.In Polanyi's inimitable phrase,"Laissez-faire was planned...." In sum,this shift in what we might call the balance between"authority' and "'market''fundamentally transformed state-society relations,by rede- fining the legitimate social purposes in pursuit of which state power was expected to be employed in the domestic economy.The role of the state became to institute and safeguard the self-regulating market.To be sure,this shift occurred unequally throughout western Europe,and at uneven tempos. And of course nowhere did it take hold so deeply and for so long a period as in Great Britain.Great Britain's supremacy in the world economy had much to do with the global expansion of this new economic order,and even more with its stability and longevity.But the authority relations that were insti- tuted in the international regimes for money and trade reflected a new bal- ance of state-society relations that expressed a collective reality. These expectations about the proper scope of political authority in eco- nomic relations did not survive World War I.Despite attempts at restora- tion,by the end of the interwar period there remained little doubt about how thoroughly they had eroded.Polanyi looked back over the period of the "twenty years'crisis"from the vantage point of the Second World War-at the emergence of mass movements from the Left and the Right throughout Europe,the revolutionary and counterrevolutionary upheavals in central 19Ibid.,p.50. 2Ibid.,p.51,italics added. aPolanyi describes the parallel movements,in the case of Great Britain,of the middle class into the political arena and the state out of the economic arena
386 International Organization . . ."I9 In the Netherlands, these were merchants, shipowners, and bankers; in Great Britain, the manufacturing sectors backed by the intellectual hegemony established by the Manchester School; in France, largely industrial interests employing imported materials and equipment in production, though they would not have succeeded against the weight of countervailing interests had not Louis Napoleon imposed free trade for unrelated reasons of international diplomacy; in Prussia, grain and timber exporters, though Bismarck was not adverse to using trade treaties in the pursuit of broader objectives and free trade treaties seemed to be au courant; in Italy, the efforts of Cavour, which prevailed over disorganized opposition. Equally particularistic factors were at work in Belgium, Denmark, Norway, Sweden, Spain, and Portugal. But how did such diverse forces come to converge on the single policy response of free trade? In a certain sense, Kindleberger contends, Europe in this period should be viewed not as a collection of separate economies, but "as a single entity which moved to free trade for ideological or perhaps better doctrinal reasons."20 The image of the market became an increasingly captivating social metaphor and served to focus diverse responses on the outcome of free trade. And unless one holds that ideology and doctrine exist in a social vacuum, this ascendancy of market rationality in turn must be related to the political and cultural ascendance of the middle classes. In Polanyi's inimitable phrase, "Laissez-faire was planned. . . ."21 In sum, this shift in what we might call the balance between "authority" and "market" fundamentally transformed state-society relations, by redefining the legitimate social purposes in pursuit of which state power was expected to be employed in the domestic economy. The role of the state became to institute and safeguard the self-regulating market. To be sure, this shift occurred unequally throughout western Europe, and at uneven tempos. And of course nowhere did it take hold so deeply and for so long a period as in Great Britain. Great Britain's supremacy in the world economy had much to do with the global expansion of this new economic order, and even more with its stability and longevity. But the authority relations that were instituted in the international regimes for money and trade reflected a new balance of state-society relations that expressed a collective reality. These expectations about the proper scope of political authority in economic relations did not survive World War I. Despite attempts at restoration, by the end of the interwar period there remained little doubt about how thoroughly they had eroded. Polanyi looked back over the period of the "twenty years' crisis" from the vantage point of the Second World War-at the emergence of mass movements from the Left and the Right throughout Europe, the revolutionary and counterrevolutionary upheavals in central lg Ibid., p. 50. 20 Ibid., p. 51, italics added. Polanyi describes the parallel movements, in the case of Great Britain, of the middle class into the political arena and the state out of the economic arena
International regimes,transactions,and change 387 and eastern Europe in the 1917-20 period,the General Strike of 1926 in Great Britain,and,above all,the rapid succession of the abandonment of the gold standard by Britain,the instituting of the Five Year Plans in the Soviet Union,the launching of the New Deal in the United States,unorthodox budgetary policies in Sweden,corporativismo in Fascist Italy,and Wirkschaftslenkung followed by the creation of both domestic and interna- tional variants of the "new economic order''by the Nazis in Germany. Running throughout these otherwise diverse events and developments,he saw the common thread of social reaction against market rationality.State- society relations again had undergone a profound-indeed,the great- transformation,as land,labor,and capital had all seized upon the state in the attempt to reimpose broader and more direct social control over market forces.Once this domestic transformation began,late in the 19th century, international liberalism of the orthodox kind was doomed.Thus,it was the singular tragedy of the interwar period,Polanyi felt,to have attempted to restore internationally,in the form of the gold-exchange standard in par- ticular,that which no longer had a corresponding social base domestically. The new international economic order that would emerge from World War II,Polanyi concluded,on the one hand would mark the end of"'capitalist internationalism,as governments learned the lesson that international au- tomaticity stands in fundamental and potentially explosive contradiction to an active state domestically,and,on the other hand,the emergence of delib- erate management of international economic transactions by means of col- laboration among governments.22 Some of Polanyi's thoughts about the future had already been enter- tained by the individuals who would come to be directly responsible for negotiating the monetary component of the postwar international economic order.In the depth of the Depression,Harry Dexter White had pondered the problem of how to buffer national economies from external disturbances without,at the same time,sacrificing the benefits of international economic relations."'The path,I suspect,may lie in the direction of centralized control over foreign exchanges and trade.''23 Indeed,in 1934 White had applied for a fellowship to study planning techniques at the Institute of Economic Investi- gations of Gosplan in Moscow.Instead,he accepted an offer to go to Wash- ington and work in the New Deal.For his part,one of the first assignments that Keynes undertook after he joined the British Treasury in 1940 was to draft the text of a radio broadcast designed to discredit recent propaganda proclamations by Walther Funk,minister for economic affairs and president of the Reichsbank in Berlin,on the economic and social benefits that the "'New Order''would bring to Europe and the world.Keynes was instructed to stress the traditional virtues of free trade and the gold standard.But this, he felt,"will not have much propaganda value.''Britain would have to offer 2 The Great Transformation,esp.chaps.2 and 19-21. 23 Quoted in Van Dormael,Bretton Woods,p.41
International regimes, transactions, and change 387 and eastern Europe in the 1917-20 period, the General Strike of 1926 in Great Britain, and, above all, the rapid succession of the abandonment of the gold standard by Britain, the instituting of the Five Year Plans in the Soviet Union, the launching of the New Deal in the United States, unorthodox budgetary policies in Sweden, corporativismo in Fascist Italy, and Wirkschaftslenkung followed by the creation of both domestic and international variants of the "new economic order" by the Nazis in Germany. Running throughout these otherwise diverse events and developments, he saw the common thread of social reaction against market rationality. Statesociety relations again had undergone a profound-indeed, the greattransformation, as land, labor, and capital had all seized upon the state in the attempt to reimpose broader and more direct social control over market forces. Once this domestic transformation began, late in the 19th century, international liberalism of the orthodox kind was doomed. Thus, it was the singular tragedy of the interwar period, Polanyi felt, to have attempted to restore internationally, in the form of the gold-exchange standard in particular, that which no longer had a corresponding social base domestically. The new international economic order that would emerge from World War 11, Polanyi concluded, on the one hand would mark the end of "capitalist internationalism," as governments learned the lesson that international automaticity stands in fundamental and potentially explosive contradiction to an active state domestically, and, on the other hand, the emergence of deliberate management of international economic transactions by means of collaboration among go~ernments.~~ Some of Polanyi's thoughts about the future had already been entertained by the individuals who would come to be directly responsible for negotiating the monetary component of the postwar international economic order. In the depth of the Depression, Harry Dexter White had pondered the problem of how to buffer national economies from external disturbances without, at the same time, sacrificing the benefits of international economic relations. "The path, I suspect, may lie in the direction of centralized control over foreign exchanges and trade."23 Indeed, in 1934 White had applied for a fellowship to study planning techniques at the Institute of Economic Investigations of Gosplan in Moscow. Instead, he accepted an offer to go to Washington and work in the New Deal. For his part, one of the first assignments that Keynes undertook after he joined the British Treasury in 1940 was to draft the text of a radio broadcast designed to discredit recent propaganda proclamations by Walther Funk, minister for economic affairs and president of the Reichsbank in Berlin, on the economic and social benefits that the "New Order" would bring to Europe and the world. Keynes was instructed to stress the traditional virtues of free trade and the gold standard. But this, he felt, "will not have much propaganda value." Britain would have to offer 22 The Great Transformation, esp. chaps. 2 and 19-21. 23 Quoted in Van Dormael, Bretton Woods, p. 41