Governing Finance: East Asia's Adoption of International Standards

2. A Theory of Compliance with International Standards

The previous chapter argued that the rise of regulatory neoliberalism and the associated international standards project raises important practical challenges for many countries, especially developing ones. This chapter has two primary objectives. First, it asks how we should understand compliance in the world economy and how this relates to the concept of convergence . Second, it outlines a theory of what determines compliance and noncompliance with international standards. Existing theories of compliance, whether they emphasize ideational factors (Hall 2003) or international market or institutional forces (Jayasuriya 2005; Pirie 2005; Soederberg 2003), have often argued that states and private market actors will find it difficult to resist. Many such theories fail to address the possibility that compliance with international standards can be superficial rather than substantive. In contrast to these theories, I argue that there are good reasons to expect that mock compliance will often be widespread in developing countries, mainly for reasons of domestic politics.1 Furthermore, under circumstances that I specify, such mock compliance is likely to be sustainable over long periods of time. Compliance and Convergence in the World Economy Before we discuss competing theories about the nature of and forces behind compliance with international standards, it is necessary to define our key concepts, compliance and convergence. Compliance with international rules and standards has been a focus of recent literature that developed out 2 A Theory of Compliance with International Standards 30 Governing Finance of the international regimes tradition in international relations (Krasner 1982; Keohane 1984). This literature is mainly concerned with how international law and regimes affect state behavior, though the behavior of nonstate actors can also be an important issue.2 Compliance signifies when the actual behavior of actors who are the targets of an international rule or standard conforms to the prescriptions of that rule or standard.3 Most of us easily recognize when others act inconsistently with laws and social norms that prevail within countries or communities ; most of the time, perhaps, most actors comply with most such laws and norms. International regimes generally aim at altering or constraining state behavior, including the behavior of actors within states. International standards related to financial regulation are voluntary, but are intended to provide principles that countries should adopt when revising national frameworks for both public and private sector behavior. Self-evidently, such standards are intended to have a constraining effect on national behavior and assume that many actors do not currently act in ways consistent with such standards. If compliance occurs when actor behavior is consistent with accepted standards, convergence is the process by which previously different actors, groups, or organisms become more alike. As noted above, the main proponents of the international standards project have seen the promotion of compliance with such standards as a key means of fostering a general convergence toward regulatory neoliberalism. However, compliance with international standards and convergence upon regulatory neoliberalism need to be clearly distinguished for the following reasons. First, although both compliance and convergence will always in practice be a matter of degree,4 compliance is concerned with actor conformity to a specific rule or standard, whereas convergence relates to the overall nature of the system or organism. The core of regulatory neoliberalism is the transparent and neutral regulation of deregulated markets by independent supervisory agencies. This benchmark is an ideal type, which makes the assessment of convergence upon regulatory neoliberalism a different matter to the assessment of compliance, not least because there are many different ways in which actor behavior can fall short of this ideal type. Departures from this ideal type occur in those countries said to typify regulatory neoliberalism , such as the United States, though such departures may be less systematic than in other countries. Second, even if all actors in a particular country were in full compliance with all existing international standards, this need not imply complete convergence upon regulatory neoliberalism. Even if, as argued in chapter 1, many international standards have been inspired by the ideals of regulatory neoliberalism, as products of often difficult international negotiation they are never likely to be full expressions of these ideals. As a result, different A Theory of Compliance 31 possible forms of compliant behavior are likely to exist, including some that depart from the ideal of regulatory neoliberalism.5 This also implies that outright noncompliance with some international standards may be compatible with regulatory neoliberalism. In addition, as lawyers and...