The Politics of Global Regulation

Chapter Eight: Economic Integration and Global Governance: Why So Little Supranationalism?

C H A P T E R E I G H T Economic Integration and Global Governance: Why So Little Supranationalism? Miles Kahler and David A. Lake ECONOMIC MODELS of international governance predict that greater levels of global economic integration are likely to produce changes on two institutional dimensions. The site of governance should shift from the national to the regional and global levels as states pool their decisionmaking powers. At the same time, delegation to supranational institutions should be favored for managing the governance requirements of a more integrated economic order. Not only should states coordinate their responses to global challenges, the gains from specialized governance and the need for enhanced credibility and dispute resolution should also lead states to transfer authority to supranational agents. Yet, the record of international economic governance over the past quarter-century of globalization does not support these predictions. Outside the European Union, the functions and delegated authority of global and regional economic institutions have not uniformly increased. Regulatory policies in particular have not generally migrated from national governments to new or expanded supranational institutions. Given the rapid increase in global economic integration— whether measured by policy liberalization, by trade, capital, and migration flows, or by price convergence —why is there so little supranationalism? After describing the puzzling (for economic models) variation in supranationalism across issue-areas, we present a two-step explanation for this “missing” supranationalism. We describe two additional modes of international governance: hierarchy, in which states transfer regulatory authority to dominant states for certain limited purposes, and networks , in which states, private actors, or both share regulatory authority through coordinated and repeated interaction. Hierarchies and networks serve as functional substitutes for supranational delegation to international institutions. In a second stage of our explanation, political models of international governance are deployed as substitutes for or supplements to economic models of governance. Economic models predict too much supranational- Economic Integration, Global Governance • 243 ism and cannot explain variation among the three modes of governance. Efficiency is often overwhelmed as a driver in the presence of distributional and institutional conflict, which often characterizes regulatory policies . Drawing on earlier work, political explanations for the apparent “missing” supranationalism are provided, and preliminary conjectures on the politics of choice among alternative governance models are presented .1 Political models and the conjectures that they inspire also offer explanations for the relative frequency of regulatory capture among these alternative forms of international governance. The likelihood of regulatory capture is determined by both international and national variables. None of the governance modes—supranationalism, hierarchy, or networks —are inherently immune from capture. GLOBALIZATION AND SUPRANATIONALISM: UNEXPLAINED VARIATION In contrast to the first era of globalization (before 1914) and the interwar decades of economic turbulence and closure, planning for international economic governance after World War II awarded a far more central role to intergovernmental organizations (IGOs) than had been the case under the League of Nations. The turn toward formal IGOs, however, was not a result of increased economic integration: those institutions, whatever their liberalizing goals, were designed during World War II and its aftermath , a low point in international economic integration. As global economic integration increased, particularly after 1980, its effects on these institutions of supranational delegation were far from uniform. One favored prediction had been that such integration, if it did not induce a nationalist backlash, would require substantial increases in the authority of supranational institutions. Although economic integration proceeded at a different pace according to region and issue-area, its advance in key areas of trade, finance, and foreign direct investment could not be questioned . Yet institutional outcomes at the global level were hardly uniform. Globalization produced a marked increase in supranational delegation in the trade regime, a decline in supranationalism in the monetary and financial regimes, and a complete failure to delegate in the rules governing foreign direct investment. The trade regime has most closely followed the predicted path of increasing authority delegated to global and regional IGOs. The scope of the World Trade Organization (WTO), founded in 1995, was larger than 1 See Miles Kahler and David A. Lake, “Globalization and Governance” and “Globalization and Changing Patterns of Political Authority,” in Miles Kahler and David A. Lake, eds., Governance in a Global Economy (Princeton, NJ: Princeton University Press, 2003). 244 • Miles Kahler and David Lake its predecessor, the GATT, encompassing trade in services, as well as behind-the-border policies that had previously...