When the shoe is on the other foot: Changes in Global Governance

The Chief Economist of the International Monetary Fund (IMF) is calling for countries to raise their inflation targets and pursue counter cyclical fiscal policies. Why? The current economic crisis has "exposed flaws in the precrisis policy framework." As the Financial Times reports, this runs against what has come to be called economic "orthodoxy," and represents a dramatic shift away from the standard policy advice of the IMF - stretching back decades.

During the East Asian Financial Crisis of the late 1990s, for example, the Fund imposed economic austerity on countries that received IMF loans - raised interest rates and contractionary fiscal policy. During the Latin American Debt Crisis of the 1980s, austerity was also the answer. Not surprisingly, these policies resulted in lower economic growth, but the IMF preached financial stability first, economic growth to follow.

Of course, during these years, the only borrowers from the IMF were developing countries. Indeed, until the recent crisis, the last time an advanced industrial country borrowed from the IMF was the mid-1970s. And as Joseph Stiglitz has observed, the contractionary IMF advice seemed somewhat hypocritical, considering the way advanced industrial countries responded to economic crises - far from following economic austerity, these countries always put together stimulus packages.

The hypocrisy did not go unnoticed by people of the developing world, who grew to hate the IMF, some seeing it as a tentacle of Western imperialism. The debacle that resulted from IMF policy advice during the East Asian Financial Crisis was the last straw. Nearly all emerging market countries and even some poorer countries vowed they would never again borrow from the IMF. During the first decade of the 2000s, the IMF had to go on an austerity program of its own. With few countries borrowing or - importantly - repaying their loans with interest, the Fund did not have the funds to run its operations.

Well, now the shoe is on the other foot. The current economic crisis has driven many countries to borrow from the IMF, and the international organization is back in business. For the first time in a long time, however, its customers include advanced industrial economies. And suddenly, economic austerity isn't looking like the answer.

If one takes a broad historical view of the IMF, this softer IMF does not seem so heretical. The IMF was the brainchild of Lord Meynard Keynes of "Keynsian" economics. As the world emerged from the Great Depression, he advocated the international pooling of resources to be used in times of economic downturns in a counter-cyclical manner. The problem as seen by the United States - the world's largest creditor at that time - was that the promise of liquidity during economic crises would lower the incentives of governments to avoid those crises in the first place, a problem we call "moral hazard." The solution that developed over time was "conditionality": in return for liquidity, the IMF would require governments to adjust their policies.

But how much liquidity in return for how much adjustment? This debate has fueled the historical evolution of the IMF. In the early years - up to the 1970s, the United States was on the harsher side of conditionality, with opposition coming from the borrowing Western European countries. When the United States became a deficit country, the advanced industrial world decided to turn away from IMF solutions, pursuing a radically different way to structure their international economic transactions. (Notably, they moved from fixed to floating exchange rates - see Eichengreen's work.)

The IMF had been lending all along to developing countries, however, and thus it simply shifted its focus to them. During these times, the advanced industrial countries usually favored harsh conditionality, while the developing world often complained that IMF policies were hurting economic development. Of course, the IMF decides most things according to majority rule, and votes are supposed to be pegged to economic weight. So, the developing world was out-voted, and austerity carried the day throughout the 1980s and 1990s. Finally, by the early 2000s, practically no one wanted to deal with the IMF conditionality.

Now with the current crisis, the Washington "Consensus" of tight monetary policy and fiscal austerity is no longer. Those favoring weak conditionality and expansionary policies are now carrying the day at the IMF. Yet, there will be a price to be paid for expansion, and when the dust settles, we will have a very different looking IMF.

The emerging markets have arrived. In the coming decade, we will see increasing vote shares at the IMF for countries like China, Brazil, India, Korea, Mexico, Indonesia, Turkey, Iran (yes, a member in good standing) and South Africa - many of whom were historically spurned by IMF conditionality. Still, the debate over conditionality will persist. Those not hit by a crisis will still worry most about moral hazard and advocate stringent conditionality. Those closely tied to the crisis will advocate the massive provision liquidity, eschewing conditionality (see Lipscy's piece on this). Some will preach stability first, growth thereafter. Others will suggest that by priming the pump, we can grow our way out of crisis and debt.

So where's the real change?

Global economic power has shifted. In their Godfather parable, Hulsman & Mitchell suggest the United States is "slipping." We've moved from a uni-polar world to a multi-polar globe. The United States will remain the "chairman of the board," continuing to hold more IMF votes than any other single country - as the world's largest economy and biggest contributor to the IMF. But it will have to share power, most notably with China. And this will be the real, long-lasting change at the IMF. See, during the bi-polar days of the Cold War, the Soviet countries refused membership in the Fund. So the West dominated the votes. But soon, and for the first time in its history, the IMF will have multiple voices with power. Importantly, they will have different ties to different economies - so preferences over liquidity provision and moral hazard may shift depending on where the next crisis hits. Looking decades ahead, we've got to ask ourselves: How will conditionality feel when the shoe is on the other foot?

Dictatorships, torture, and human rights treaties: The Bad Ass Theory

Why do dictatorships enter into human rights treaties?

I addressed this question a while back, picking up on a puzzle first identified by my friend and colleague Oona Hathaway.

Dictatorships that practice the most torture are more likely accede to the UN Convention Against Torture (CAT) than dictatorships that practice less torture. I argued the reason has to do with the logic of torture:
Torture is more likely where power is shared. In one-party or no-party dictatorships, few individuals defect against the regime. Consequently, less torture occurs. But dictatorships are pro-torture regimes; they have little interest in making gestures against torture, such as signing the CAT. There is more torture where power is shared, such as where dictatorships allow multiple political parties. Alternative political points of view are endorsed, but some individuals go too far. More acts of defection against the regime occur, and torture rates are higher. Because political parties exert some power, however, they pressure the regime to make concessions. One small concession is acceding to the CAT.

Peter Rosendorff and James Hollyer, who are from my alma mater - NYU, have a different argument, which I find fascinating. Here's their story:

Dictators who enter into the CAT send a signal of extraordinarily strong resolve to hold on to power. How does the signal work? Well, the CAT has an important legal feature called "Universal Jurisdiction." This means that if a dictator commits torture in his (they's almost universally men) own country, he may be prosecuted for the crime by courts in another country - this is what happend to Pinochet of Chile. Now, as long as the dictator holds on to power, he is safe from prosecution. But if he ever falls from power, he may very well find himself in the same place Pinochet did, when he was extradited from the United Kingdom to Spain.

Skeptics might suggest that none of this really matters since states are unlikely to utilize universal jurisdiction. Yet, as Darren Hawkins and Jay Goodliffe write in an unpublished paper with me, one recent study found that 109 states had incorporated universal jurisdiction into their domestic legislation. Of those, 14 have actually tried court cases based on the principle, and courts have upheld the law in 12 of them.

So, if a dictator enters into the CAT, he better be darn sure that he will never fall from power. And this is precisely the point. He is sending a signal to his domestic audience that he intends on doing whatever is necessary to hold on to power, and he's quite confident in his ability to survive in office. Only the strongest resolve dictators will take such a step. Soft dictators can't rist faking it - if they sign the CAT and lose their grip on power, they're libel to end up in the slammer. So the signal the tough dictators send is unambiguous, and might even serve to quite opposition, who realize that resistance is futile.

The phrase “bad ass” developed when Rosendorff first told me about the paper. I believe I was the first to use the term publicly - first, when I taught the paper to some students, and then more recently at the 3rd Annual Conference on the Political Economy of International Organizations.

I agree with Erik Voeten, regarding “the sheer ingenuity of the theory.” And I’d like to also note that this is part of a broad approach that Rosendorff has developed over the course of his career.

The central thesis in much of Peter’s work is that international arrangements are ways to signal information to an uninformed domestic audience. Basically, rulers and citizens play a principal-agent game of asymmetric information. Whether and what kind of information the ruler will transmit to citizens depends on domestic political institutions (e.g., democracy vs. dictatorship), with rulers always trying to maximize their chances of survival in office. International arrangements can serve as credible 3rd parties that rulers use to transmit information about what type of ruler s/he is.

Peter has used this framework to explain trade agreements in his work with Milner and Mansfield. And he has used the framework to explain transparency (where the World Bank serves a credible 3rd party) in a paper he co-authored with yours truly.

In the trade and transparency work, democracies use international arrangements to credibly signal the fact that they are following policy that is good for voters. In the human rights story, the dictator uses the treaty to signal that they are willing to do anything, including torture, to stay in office - and they’re so sure of themselves, they commit to going to jail (through the enforcement of universal jurisdiction) if they do ever fall from power.

The “bad ass” story of why dictators enter into human rights treaties contrasts nicely with Moravcsik’s story of why democracies enter into them. You see, Rosendorff and Hollyer’s dictators enter because they’re sure they’ll never fall from power, and they want to send a signal of how tough they are. Moravcsik’s democracies enter because they’re not sure at all that they’re going to maintain power… they fear that a tough dictator may want to overthrow and torture them… so they want to tie the hands of the state to a powerful international organization. I don’t think the stories are mutually exclusive, and they pertain to different types of international institutions - the Convention Against Torture has “universal jurisdiction” and the European Convention for the Protection of Human Rights andFundamental Freedoms delegates sovereignty to a powerful international organization…

I’ve been trying to convince Peter to write a book on this stuff… consider this a really rough start :-)

(Credit to Erik Voeten's blog, where I originally posted this comment.)

Darf ich mich vorstellen?

My name is James Raymond Vreeland, Associate Professor of International Relations at Georgetown University in the Edmund A. Walsh School of Foreign Service and the Government Department.

I love my job! It has taken me all over the world. My research has been presented in over fifteen countries located in six different continents, and I have held positions on five continents at universities including Bond University, ETH Zürich (Swiss Federal Institute of Technology Zürich), Korea University, University of California, Los Angeles, University of São Paulo and Yale University. I also teach for the Global Executive Master of Business program through the McDonough School of Business and ESADE Business School (Barcelona, Spain). My module is taught in Moscow. This summer, I will also teach a course in Buenos Aires for the Master in Development Management and Policy program, a joint degree created by the Universidad Nacional de San Martín (UNSAM) and Georgetown University.

I do research in the field of international political economy. My research explores a wide range of policy outcomes, including economic growth and the distribution of income under programs of economic reform, the foreign policy positions of developing countries, the transparency of policy making under various political systems, and even the commitment of governments to defend basic human rights or, alternatively, to engage in such pernicious activities as the practice of torture. I have also done some work on democracy and its relationship to civil war.

My work addresses the ways in which international and domestic politics interact, in particular the ways in which international organizations can be used to do the dirty work of governments - how they can "launder" dirty politics - how they are used as scapegoats - in short, how international actors can be the "dark knight" in domestic politics (sometimes for better, sometimes for worse).

I have written two books: The IMF and Economic Development (Cambridge University Press, March 2003) and The International Monetary Fund: Politics of Conditional Lending (Routledge, January 2007), and I co-edited Globalization and the Nation State: The Impact of the IMF and the World Bank (Routledge, 2006). I am currently working on a new book entitled The Political Economy of the United Nations Security Council, which is under contract with Cambridge University Press. My research has also appeared in numerous scholarly journals, including International Organization, Journal of Conflict Resolution, European Economic Review, Journal of Development Economics, Public Choice, World Development, International Political Science Review, Political Analysis, The Review of International Organizations, World Economics, and Foreign Policy Magazine.

Thank you for visiting my blog! I will be posting about my ongoing research as well as current events that relate to international political economy. I look forward to your comments...