Weekly Discussion

| September 30, 2015

Readings are attached

Due tomorrow

At least 1 reference

Couple paragraphs

 

What do Fontaine and Kliman mean by “global swing states,” and are how such states changing the world and the United States position in it? Provide examples.

 

Attachments:

Constructivist Political Economy Rawi Abdelal, Mark Blyth, and Craig Parsons January 14, 2005 13,330 words, including footnotes Chapter One: The Case for a Constructivist International Political Economy Introduction: Constructivism – Where to Find it, and Where Not Social constructivism focuses on the social facts of the world. These social facts exist only because everyone agrees that they exist. Social facts are very real, and they are the product of intersubjectively (that is, collectively) held beliefs that cannot be reduced to a series or summation of subjective, individual beliefs. Social facts differ fundamentally from material facts, the reality that exists irrespective of collective beliefs about its existence, but they nonetheless have causal properties.. As John Ruggie observes, “collectivities of individuals within states hold intersubjective understandings that affect their behavior,” just as do “collectivities of states.” Although what we think of as “the world economy” is composed of both material and social facts, the field of international political economy (IPE) within political science has tended until recently to focus almost exclusively on the material facts of the economy. Materialist scholars have attempted to map individual, firm, and government preferences over outcomes onto these material facts, thereby privileging the rational, goal-oriented pursuit of policies as the central causal mechanism in accounts of economic policy making. In IPE, the combination of materialism and rationalism has become the dominant, even orthodox, view of the world economy. IPE has been remarkably impervious to inroads from sociological approaches to economic policy making. The intersubjective beliefs that give the world meaning are absent in almost all IPE scholarship. Indeed, IPE is increasingly the last bastion for the materialists and rationalists, who have had increasingly to share the intellectual terrain with the constructivists on virtually all other topics. Constructivists have made contributions that are recognized as fundamentally important to economics and sociology, as well as to every other sub-field in political science. Similarly, economic sociology has produced a vibrant research program that has influenced policy and management scholarship as well. As Frank Dobbin observes, “Sociologists began to explain economic behavior in terms of the same four social mechanisms they had observed shaping all of social behavior. These mechanisms entered the common lexicon under the terms institution, network, power, and cognition. Sociology’s core insight is that individuals behave according to scripts that are tied to social roles. Those scripts are called conventions at the collective level and cognitive schemas at the individual level.” Similarly, cultural, ideational, and institutionalist theorists have made similar claims in comparative politics for years, without necessarily labeling their focus on intersubjectivity as constructivist. In the study of international relations however, the situation was somewhat different. In IR as a whole, constructivism emerged first in security studies, and with good reason. By the mid 1980s, Realism’s jettisoning of any and all social elements from its theoretical core had the effect of making state behavior a reducta of system structure. As with any theory of the social world in which there is no social, anomalies soon began to emerge. For example, if the distribution of capabilities were the only determinant of system stability, why did French nuclear weapons not upset the United States as much as Chinese ones? Theoretical concerns soon combined with the failure of such theories to adequately predict or explain major events of the latter part of the twentieth century. Thus, one could conclude, that it was hardly a surprise when more intersubjectivist theories came to prominence. Even within the materialist camp some realist scholars came to rely on beliefs and cognitive scripts to make sense of sovereignty, the fundamental institution of the state system itself. Still others sought to incorporate ‘culture’ into realism or sought to recover realism’s subjectivist roots. Indeed, the last ten years or so has seen a transformation of international relations theory in political science. In 1994 an edited volume of leading scholars declared the “Neorealism and Neoliberalism” to be “The Debate.” Yet within a few years some were asking “Is Anybody Still a Realist?” Meanwhile, its much lauded competitor, “neoliberal institutionalism” seemed to have all but disappeared from view – as if Scylla could not persist without her Charybdis. In a way one could write all this off as expected. If a theory purports to be a general theory of politics, and that theory cannot explain what are perhaps the two most important moments of the Twentieth century – namely, World War Two and the end of the Cold War – then the defense that “two data points do not disprove a theory” becomes rather feeble. As such, constructivism in IR is simply the inevitable paradigmatic successor to structural Realism. While such a reading has merits, we do not wish to accept it and leave it at that. For another facet of the intellectual developments of the last decade or so is also very revealing. As noted above, while constructivism swept through IR like wildfire, its impact on the field of international political economy has been marginal, at least until recently. Indeed, the collapse of structural and material explanations of international politics has had little effect on such explanations in the IPE literature. This, we suggest, is because in this literature, the economy is generally held to be rather different type of place from the polity. Unlike the polity, with its mess of identities, ideas, cultures and the like, in the economic world, while informational uncertainties abound, actors are seen to have a much more straightforward time of things. They are assumed to have ‘interests’ and rationally try and follow them, subject to the interests of others and the material environment in which they find themselves. Indeed, such agents’ interests are usually derived from the structural position in which they find themselves (sheltered sector employee, export oriented capitalist, dependent state, service sector firm, etc.) and are ‘actionable’ to the extent allowed by the familiar laws of collective action, resource availability, and individual rationality. International security politics may be opaque and driven by identities, but IPE is supposed to be clear, driven by interests, and best understood rationally. The purpose of this volume is to challenge such a picture of the economic world and argue that political economy’s “constructivist turn,” long overdue, is now arriving. Constructivist explanations of economic phenomena are becoming more commonplace in the literature with a variety of scholars’ becoming less satisfied with the quasifunctionalist “just-so” stories offered by materialist-rationalist perspectives. For some, they simply do not explain enough. For others, they explain too much. Our purpose is to bring these individual contributions together in this volume, and in doing so, to make three claims. First, we aim to show how and why a constructivist international political economy often produces better explanations of political-economic outcomes than standard materialist-rationalist theories. Second, we intend to tease out the mechanisms through which the social construction of such outcomes occurs. Third, we and our collaborators will demonstrate such claims theoretically and empirically in the pieces that constitute this volume. Our goal is to make a statement for a constructivist political economy that researchers can actually use. As political scientists, we of course hope most to influence the research agenda of political science – in part by bringing the insights of other disciplines to the attention of others, and in part by demonstrating that the political science scholars who have employed the analytical frameworks of social con
structivism have created a coherent set of arguments and an innovative collection of empirical methods for exploring the influence of ideas, norms, identities, and ideologies on the economic practices of governments, firms, and societies. In this way we hope that constructivist political economy within political science will cease exclusively to import ideas from sociology and economics; it is time for political scientists to begin to export their considerable insights to other disciplines as well. Constructivist scholars in political science have tended to be puzzle-driven. Many of the most influential studies of the influence of social facts on politics began with a research question that simply could not be answered with the standard rationalist and materialist tools of the discipline. For example, a decade’s worth of scholarship on important and theretofore unanswered questions in security studies culminated in a programmatic statement on the influence of norms and identities in world politics – the “culture of national security.” One result of this volume was a definitive collection of important empirical questions whose answers were inescapably sociological. The skeptics could no longer quibble with each individual scholarly contribution. Another result was programmatic statement of the way forward theoretically (Jepperson, Katzenstein, and Wendt). We hope in this volume to lay the groundwork for a similar statement about the importance of constructivist insights into political economy. One political economy puzzle with a constructivist answer can perhaps be dismissed as exceptional. A dozen such puzzles, however, suggests that constructivism has, and will continue to be, systematically useful for understanding how the world economy and regional, national, and local economies work. Part One: Clearing the Ground for Constructivism in IPE The Real Economy and the Constructed IPE We are aware of the easy criticism that when it comes to the economy, the real – the material – has been misunderstood by us in our enthusiasm to understand the ideational – the social – origins of economic outcomes. As The Economist magazine once put it, the real economy is constituted by ‘things you can buy, sell, and drop on your foot’ and such things are real objects with real effects. As such, the value added of insisting that such ‘material objects’ are constructed is limited at best. Indeed, the work of each of the scholars in this volume has been subject to such critique, but it is a critique we feel is misplaced at best. Instead, we argue that it is important to realize that much of the economy that is regarded as ‘material’ and ‘real’ cannot in fact be bought, sold, or dropped on one’s foot. Take, for example, the actual content of a country’s gross domestic product (GDP) – what it makes, the competitiveness of its products on world markets, the real and financial interdependences among economies, its factor endowments, its specific assets. Are these indefatigably real objects? We would in fact, contest that they are, and they are. While we do not deny that there is much that the material facts of the world economy can tell us about how governments and societies are constrained and enabled, which countries grow more and less quickly, and which policies achieve their intended outcome and which do not, we actively resist such a reductionism for several reasons. First of all, looking at this broadly, even the putatively material facts of the world economy include an inescapably ideational element, all the way down through such ‘hard facts’ as GDP. Although there is a sense in which GDP is fundamentally material in that one produces wheat and weapons or one does not, how societies account for national product and national income is a construction. The usefulness of the construction helps to explain its widespread use among societies, but it is clear that choices have been made about what to count (e.g., goods and services with market values, rather than the “gray,” informal economy or activities within households), what not to count (e.g., environmental degradation and ecological sustainability), and how to count it (e.g., with surveys and various methods of estimating changes in economic activity). National income accounting is a social construction that the entire world now takes for granted, and governments alter their economic policies on the basis of a few basis points of change of GDP from one quarter to the next. Second, despite materialist theorists’ prognostications, many of the material processes of the world do not seem to result in unambiguous outcomes. Causes and effects often seem to be opaque and linked non-linearly. Take financial globalization as an example. Regardless of the particular nuances, the materialist theories of the 1990s were clear. Big spending welfare states would be punished with capital flight in a taxation and wage race to the bottom. Either such states would converge on the Anglo-American equilibrium of labor market flexibility, low taxes, and low welfare transfers, or they would be seriously hurt. Unfortunately, while the theory was determinate, the facts were not. What we saw instead was that those states slated most likely to falter were in fact among the most productive. In short, there were and are multiple stable equilibria under conditions of financial globalization. Materialist theories of such processes, by ignoring how agents interpret the environment around them and then take actions, make erroneous predictions. How globalization impacts a state depends upon how it is seen by agents within that state. Thus, while the British seek to ‘embrace’ globalization as an opportunity, the French resist ‘Mondialisation’ as an alien import. Material facts, it seems, can be very underdetermining indeed. Indeed, despite what orthodox theories maintain, the same is true at the micro level of individuals and their choices. When one thinks of a micro-level political economy one tends to think of similarly “hard” concepts such as interests (agents are assumed to have them, independent of other agents), played out against more macro level structures (debt levels, the distribution of wealth, the tax burden), and material processes (such as financial globalization), all of which are held to have determinate effects. Again, while we would agree that such factors do matter, they do not matter in the way one usually thinks. Materialist-rationalist models of political economy typically rely upon an explanatory structure where material factors are insufficient in and of themselves, to explain outcomes. By definition, they lack agency, and the way such factors are said to animate agents is either too simplistic, with automatic and unproblematic readings of structural variables’ values leading to agents deciding upon unique behaviors in relation to those values. In some circumstances such an approach to explanation may seem fine, and indeed, most of the IPE literature takes such a view of its own project. When agents have clear interests (businesspeople and politicians want to make money and attain power), when those interests have an straightforward material basis (the agent is a businessman or politician), and crucially, when the world an agent operates in is unambiguous (certain actions probabilistically lead to profits or power, other to losses or defeat), such an approach may in fact tell us what we need to know. That “the dollar fell on news of a widening trade deficit” for example, or that “better than expected unemployment figures will lead to a tightening of interest rates” implies clear interests, definite outcomes, and straightforward causation. Or does it? Take the example of the trade deficit. It is entirely possible that a widening trade deficit will lead to a decline in the dollar, but such a process is hardly automatic. It depends on what actors think a sustainable deficit is, for example, and this comes with no clear metric. Likewise, a generation ago, lower unemployment may have been met by a further reduction in interest rates rather than a futur
e rise. Being “inflation averse” is not an autonomic response of the human animal; it is a learned behavior. As Frank Dobbin argues, “People in all … places may be self-interested, but the concept of self-interest is of little use in explaining why people behave differently in different places.” The point we wish to stress is that material factors such as interest rates, productivity figures, and capital flows are not self-apparent phenomena that unambiguously telegraph to agents “what is to be done” according an obvious metric of behavior. To take an extreme but illustrative example, economies may rapidly deflate, but the decision to conduct reflationary fiscal policies rather than commit genocide against a target population is not given by the material circumstances an agent operates in. This is why a constructivist political economy, one that moves away from seeing interests and the material context of action as unmediated and unproblematic, is so important. Key to seeing why this is the case lies in unpacking three notions; interests, stability, and uncertainty. Part Two: Making the Case for Constructivism in IPE Constructed Interests Beyond the interpretation/outcome problems noted above concerning interests, the notion of acting on one’s interests implicitly assumes that agents act in their “true” interests. As the judge of one’s own best interests, whatever an agent chooses can only be assumed, by the observer, to be the best the agent can do, given subjective expected utility limitations. To put it bluntly, “interests are interests” and by definition must be those held “truly” by the agents in question. Yet “true” interests can only be assessed and acted upon under optimal conditions with perfect information. Only under such conditions are the full range of alternatives and their relative costs apparent to the agent. Such conditions are rather implausible and are perhaps never found in situations of political interest. If information is processed differently by different agents, or if information is asymmetrically distributed, then interests cannot be “given” by structural location or revealed ex-post in behavior. Yet, it is precisely these situations that are of interest to political economists. Otherwise, we are, simply re-describing the obvious in a somewhat circular manner. Analysts end up in this position because of a conceptual error present in materially derived notions of interest: conceiving of interest as a singular concept. Positing that an agent did something because his or her “interest” lay in “x” over “y” ignores the fact that the concept of interest presupposes unacknowledged but very important cognates of interest, such as wants, beliefs, and desires. These cognates are not analytically separate from interests and must be considered as part of the concept of interest itself. Seen in this way, specifying agents’ interests becomes less about structural determination and more about the construction of “wants” as mediated by beliefs, desires, and the wider social context of action. Interests are social constructs, not material givens, and should be analyzed as such. Before they can be something that “does the explaining,” they themselves need to be explained. As Alexander Wendt has argued, in order to specify interests one must first specify the beliefs an agent has about what is desirable in the first place, which is an irreducibly inter-subjective process. We need to consider “what is desired” as a construction rather than a material given since “we want what we want because of how we think about it” and not because of any innate properties of the object desired. When seen in this way, the constructed and inter-subjective nature of desires and beliefs collapses and a richer constructivist understanding of interests becomes possible. Uncertainty and Stability in the IPE Standard political economy explanations problematically assume, as well as transitivity of preferences and clear interests, a relatively stable structural context in which choices over possible outcomes are being made. Such an assumption may in fact be less tenable than it seems. In situations of environmental stability, agents’ interests are indeed relatively unproblematic since any ambiguities they have over strategies are a function of two factors; risk and complexity. Under such conditions agents’ interests are stable, they are just more or less “sure” of how, and how likely they are, to achieve them. In situations of environmental instability however, how interests are conceptualized, and thus how outcomes can be explained, changes drastically. To understand why this is the case, and why such a scenario is as likely than not to characterize the IPE, consider interests under uncertainty understood as a standard problem of risk. Back in 1921 Frank Knight made a distinction between situations of risk, where agents know their interests but are unsure how to achieve them (probabilistic uncertainty) and uncertainty, where no such probabilities can be assigned. In the former situation, uncertainty is the result of “the complexity of the problems to be solved…the problem solving software…possessed by the individual” and incomplete information between agents. Uncertainty, in this guise, is a function of computational failings and environmental complexities, nothing more. Agents rank priors and choose among options to maximize under constraints; some succeed, some fail. The uncertainty faced by agents in this world is equivalent to gambling with dice; it is risk. This was not what captured Knight’s attention. For Knight, uncertain situations are qualitatively different from situations of risk. If the situation facing agents is “unique,” that is, having no priors to draw on from past experiences agents can have no conception as to what possible outcomes are likely, and hence what their interests in such a situation in fact are. Being unable to form “a series of instances” of like-type events from priors and thus project probabilities, agents’ interests in such an environment cannot be given by either assumption or structural location. Given interests, and thus standard notions of action, have little meaning under conditions of Knightian uncertainty. As Jens Beckert argues “if one can argue … [that] … uncertainty … does not allow actors to deduce actions from preferences … it becomes important to look at those cognitive…and cultural mechanisms that agents rely upon when determining their actions.” Interests, once again, must be seen as constructed. If this is the case, then the key question becomes, what type of situations do agents face in the political economy? Are they faced by risk or uncertainty? If the world is generally “risky” rather than fundamentally “uncertain,” then materialist-rationalist theories may be justified in treating “stability” as the normal state of affairs and extrapolating from this basis. Notwithstanding the criticisms offered above, constructivism might then only serve as a gloss on an otherwise useful and parsimonious set of theories that explain a great deal. Unfortunately, for such perspectives, uncertainty may not be the exception in the political and economic world, occurring only in moments of ‘crisis’ and other ‘creedal periods’ of change. It may in fact be more the norm than we think. Specifically, agents may assume they act in conditions of risk when in fact they are acting under uncertainty, with a host of unintended consequences as the result. If this is the case, then the world pictured by materialist-rationalist theorists may be the exception rather than the rule, thus opening the door for constructivist understandings ever wider. To see why this is the case, consider the following. Taleb and Pilpel argue that in order for an agent to find out if the world one operates in is risky or uncertain, one needs to generate a probability distribution of likely events. Unfortunately, the generator of probabilities in the social and economic world (unlike a roulette wheel) is not directly observab
le, only the results are. As a consequence, the future may be risky (priors can be ranked) but it could also be deeply uncertain (there are no priors). How would an agent know the difference? First of all, to determine if the future will be like the past, and in the absence of seeing the generator of reality, we sample from past events with the notion that more information is better than less. By sampling the past agents try and figure out the probability distribution of future events. And here lies the first problem. As Taleb and Pilpel put it, “one needs a probability distribution to gauge knowledge about the future behavior of the distribution from its past results, and … at the same time, one needs the past to derive a probability distribution in the first place.” In other words, to estimate risk one has to assume an adequate sample of past events; but how much is enough? And perhaps even more disturbing, can more information lead one astray? Can more information be ‘toxic’? In exploring this question Taleb and Pilpel explore the four possible worlds facing any agent. Two correspond to situations of risk and two correspond to situations of uncertainty. In the former two worlds, a probabilistic political economy will suffice. In the latter two, we need a constructivist understanding. Our first world is the familiar world of the coin toss where the generator is a two sided coin. Here we live in a world of certainty. We know the generator has two possible outcomes, and while there can be long runs of heads over tails over millions of iterations, one does not need a huge sample to get a reliable probability estimate. Our second world is similar to that of throwing a die. Given numbers six to one, the expected and actual means converge rapidly via sampling, and this is sufficient to derive the higher moments of the distribution. The distribution is reliably “normal” and thus sampling the past is a good guide to the future. One is not going to throw a “300” and skew the distribution from a six sided die. Out third world, so to speak, is a “fat tails” scenario (Gaussian plus Poisson) where uncertainty rather than risk begins to prevail. Here the generator may be thought of as a stock market. Though one can sample past data exhaustively, there is the possibility that large events not seen in the sample may skew the results and become known only after the fact. For example, stock market returns may seem normal by sampling, but a “Russian Default” or a “Tequila Crisis” will radically alter the distribution in way that agents cannot calculate before the fact. This is a world of uncertainty. Agents simply cannot know what may hit them, though they may be confident that the probability of being hit is small. Our fourth world is even worse. Thus far we have assumed some form of ‘normality’ in the distribution of possible outcomes, even allowing for a “fat tails” scenario. However, imagine a generator such as “the global economy.” In this case, agents can sample the past till doomsday and actually become steadily more wrong about the future in doing so. As Taleb and Pilpel put it “it is not that it takes time for the experimental moments … to converge to the ‘true’ [moments]. In this case, these moments simply do not exist. This means … that no amount of observation whatsoever will give us E(Xn) [expected mean], Var(Xn) [expected variance], or higher-level moments that are close to the “true” values…since no true values exist.” To see such dynamics in action, consider the following example. Macroeconomics has had five general theories of inflation over the past fifty or so years, which suggests two things. First, these theories cannot be general theories since they change every decade or so. Second, such theories might be thought of as general (at the time they were constructed given the sample that they are derived from) but such theories must change since the actual sources of inflation change over time given the highly complex nature of the global economy. If the causes on inflation in one period, for example monetary expansion, are dealt with by building institutions to cope with such causes (e.g. independent central banks), this does not mean that inflation becomes impossible. Rather, it means that the conditions of possibility change such that the theory itself becomes redundant. As such, sampling the past to predict the future is not merely uncertain, it becomes a futile exercise since such underlying dynamics “invalidate our ability to conclude much from … past behavior to … future behavior; in particular, it makes it impossible for us to assign any specific probability to future outcomes, which makes the situation one of uncertainty.” In situations of risk (worlds one and two) the assumption actors (and analysts) make is that the distribution of possible outcomes is normal and that by sampling the past we gain in informational value greater than we add to the risk of error. Unfortunately, in our third and fourth worlds, this is not what actually happens. In our third world we can sample the past and compute risk, but such a measure is at best imperfect since we can be wiped out be something that was not considered at all likely (off model) and thus did not show up as part of our distribution via sampling the past (a Russian Default, or the Chinese rapidly switching out of Dollars and into the Euro, for example). We can sample all day long, but we will have no idea if the expected mean of the sample and the real mean of the distribution are anywhere near each other; we simply assume that they are, and act as if they are, for better or worse. In our fourth world things are even more problematic for materialist theories. We could be facing a Pareto-Levy distribution where no amount of sampling will work since these distributions offer no tractable solutions. Such distributions can look just like a normal distribution until something profoundly unexpected happens, such as a new and unexpected source of inflation which invalidates the theories developed from sampling past data. In such distributions there is no mean to sample for since there is no limiting point of equilibrium; one is completely shooting in the dark. In this world, if there is stability and certainty, it comes from the actions of agents themselves and not from environmental properties. Agents themselves construct stability in the face of an unknown generator of reality. Given this, which world is the world most likely faced by agents? Our first world can be ruled out since if the world was so certain, choice, let alone risk, would not be an issue. Our second and third worlds tend to be the ones pictured by orthodox theorists. Here the dice may have many more sides than six, but probabilities are computable, and while “fat tail” events can surprise us, such events are deemed to be exceptionally rare. Therefore, most of the time we assume a normal or quasi-normal distribution of risk. But can we really rely on this assumption either as a guide to action or as a guide to theories which explain actions given the inherent “surprises” that plague the political economy? Consider that currency movements over a very short period of time tend to move by far more than one or two standard deviations, and then move very little after that. Recall that half of the decline in the dollar vis a vis the Yen between 1986 and 2003 happened over ten days, or on just 0.21 percent of the trading time. Remember that shortly before the East Asian Currency Crisis, Suharto’s “crony capitalism” was being given awards by the IMF for fostering economic development shortly before it imploded. Recall that any reasonable portfolio of government bonds designed to hedge against risk in 1914 would have included Russian, Argentine and German securities, all of which would shortly be regarded as expensive wallpaper. In short, maybe the world is more like our fourth world than any other. And if it is, then the need for a constructivist political economy grows ever greater, for how else can we explain the stability that seems “normal
” in the global economy in the face of such profound underlying uncertainty? Do Agents Construct Stability in the IPE? If agents cannot reliably know what future to expect, how then can they create the stability needed to act in the economy, and indeed, to create stability in that economy if this is not its inherent nature? Someone who thought about this at length was Keynes. As Keynes put it in a famous passage: “We have, as a rule, only the vaguest idea of any but the most direct consequences of our acts. Now the whole object of the accumulation of wealth is to produce results, or potential results, at a comparatively distant, and sometimes an indefinitely distant date. Thus the fact that our knowledge of the future is fluctuating, vague, and uncertain, renders wealth a peculiarly unsuitable topic for the methods of classical economic theory … [A]bout these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know.” In response to such profound and pervasive uncertainty Keynes argued that stability comes about through the generation of market conventions. Conventions are, in the broad sense Dobbin noted above “Scripts…at a collective level” that govern action. In the IPE they are inter-subjective understandings agents share regarding how the economy is put together and how it should operate in normal times. Conventions are selfsustaining shared ideas and norms that coordinate agents expectations, with such conventions themselves being reconstituted by agents practices over time. Promoting economic stability therefore depends upon expectational coordination through the maintenance of such conventions. Keynes lists “three techniques” economic agents have devised for dealing with this situation, all of which are inherently constructivist. First, “we assume that the present is a much more serviceable guide to the future than a candid examination of the past would show it to have been hitherto.” Second, “we assume that the existing state of opinion … is based on a correct summing up of future prospects.” Third, “knowing that our own judgment is worthless, we endeavor to fall back on the judgment of the rest of the world … that is, we endeavor to conform with the behavior of the majority or average…to copy the others … [to follow] … a conventional judgment.” In short, Keynes’ macro-economy rests upon conventions, that is, shared ideas about how the economy should work. For example, a belief in cost push inflation as a convention governing the way the world works is a prerequisite of designing and maintaining institutions of centralized wage bargaining. Without agents adhering to this view of the relationship between inflation and wage growth, such institutions and the practices they enshrine would literally make no sense to the agents involved. Yet by working within such institutions the convention itself is valorized. For Keynes, agents’ interests are therefore not given by material conditions, but rest instead on inter-subjective beliefs enshrined in conventions and reconstituted by practices. In essence, for Keynes these intersubjective elements are as important in understanding stability and change in capitalist economies as any ‘brute fact’ of materiality. Keynes arrives at this conclusion because of the inherent uncertainty (not probabilistic risk) surrounding expectations of the future. That is, he sees us living in a type four world. As he notes, “the most probable forecast we can make…depends upon the confidence with which we make this forecast.” The problem is that the state of confidence itself rests upon agents’ expectations of the future, and agents’ expectations are neither naturally convergent nor self-stabilizing. Rather than agents’ expectations being an accurate reflection of an probabilistically stable underlying structure, as pure “interest based” arguments assume, agents’ expectations are instead seen as being naturally divergent and inherently unstable since they are based on shared beliefs. Therefore, instead of assuming both that expectations converge and that agents know what the fundamentals of the economy actually are, Keynes assumes that economic agents are myopic and look to each other for signals, which explains why conventions become so important in producing stability. In short, there is no truth about markets “out there” apart from the prevailing wisdom that markets have about markets themselves, and this can be a very fickle thing. A contrast with the natural world is useful here. Causes in the natural world may be highly complex, but our understandings of those causes have no impact on the outcomes we observe. For example, what we believe about the motions of the planets has no impact whatsoever upon those motions. In the economic world however the problem is qualitatively different because the beliefs that agents have about the impacts of their actions, and those of others, shapes outcomes themselves. If agents in the economy hold different expectations about how the economy works, this can lead to such agents taking a variety of actions, thereby producing radically different outcomes in the same circumstances. Agents can have a multiplicity of ideas concerning planetary motion, but such ideas will have no effect on those causal relationships in any way. An example of this interdependence is Keynesian deficit spending in a national context. Although the dominant American reinterpretation of Keynesian deficit spending as a mechanistic ‘multiplier’ effect that could in principle be calculated, it is clear that there was much more to Keynes. A classic metaphor from Keynes was of two lorries in the road that could not pass one another. What was needed was a “device,” what we would now call a coordination mechanism. For Keynes, one possibility was for the government to provide such a “device” in times of economic distress in the form of deficit spending. Keynes wrote about such a device as though it were a simple regulatory norm – each lorry would move a little to the left so that they both could pass. But the history of deficit spending has shown, among other things, that societies and markets must attach the same meanings to the deficits, and thereby to draw the same inferences for the deficits to produce their intended result. Thus the effect of the device cannot simply be to cause drivers to proceed on opposite sides of the road. The history of Japan in the last decade reveals how important the social meaning of economic policy can be. In part as a result of historical memories – necessarily socially constructed since most Japanese citizens did not themselves experience the economic policies of the 1930s – Japanese society reacted to government budget deficits designed to stimulate economic growth in exactly the opposite way that policy makers intended and theory predicted. Rather than spend more, each expansionary budget package worried Japanese society about the long-term consequences; the national savings rate rose, and consumption declined. Some economists described this reaction as perfectly reasonable, citing Ricardian equivalence about their understanding that the debt would have to be paid off at some point in the future, and so they could not be tricked – or coordinated – into being more enthusiastic about the prospects for economic recovery. But not all societies react as though they understand Ricardian equivalence, and indeed deficits often signal to otherwise well-informed mass publics that the government has become serious about inducing a recovery. The only way to understand – either a priori or in retrospect – how the signals of a budget deficit will be interpreted is to analyze systematically their social context. In contrast to rationalist and materialist theories, a constructivist version of IPE argues that agents’ expectations and intersubjective beliefs constitute causal relationships in the economy by altering the agents’ own beliefs about the interests of others, upon which the realization of their own inter-subjectively construct
ed interests depend. This is why, in part, whether a given convention is deemed to be “true” or not depends on how widely it is held. Moreover, this is what makes the assignment of probability values to outcomes, and hence the concept of “given” interests in periods of uncertainty impossible: the equilibrium set of institutions to resolve a crisis is a moving target pushed around by the beliefs of agents themselves. Both general conventions such as “the state of confidence” and specific ones such as “deficits cause inflation” are ultimately intersubjective constructions that have at best a tenuous relationship to market fundamentals and no precise calculable metric. However, as Keynes notes, “the above conventional method of calculation will be compatible with a considerable measure of continuity and stability in our affairs, so long as we can rely upon the maintenance of the convention.” Seen in this way, the maintenance of such conventions produces stability and stability itself therefore rests upon the coordination of expectations through the maintenance of such conventions. Then, and only then, is stability, and thus a new and better understanding of the political economy, possible. Part Three: Mechanisms of Social Construction Output Constructions: Norms, States and National Identities Given the foregoing, we feel it reasonable to argue that the he economic policies of governments are social in both their causes and their effects. Economic policies may be pursued because they are in accord with international norms that define both legitimate and illegitimate policy practices (for sociologists) or behaviors (for economists), as well as being materially “in the interest” of states to do so. State and national identities also influence economic policies by endowing them with purpose and meaning, as well as by connecting material facts cognitively. The international economy is therefore composed of norms of regular behavior, as well as norms of appropriate policy practices. The fact that the legitimacy and illegitimacy of macroeconomic policy practices has changed over time points to the centrality of such constructions as objects in the political economy that analysts need to take more seriously. For economists, many macroeconomic policies are undertaken for the purposes of “signaling.” Thus, macroeconomic policy making is in part supposed to lead to market outcomes through real effects – a central bank will, for example, reduce interest rates in order to encourage borrowing for investment, or a government may increase budget deficits to stimulate both consumption and investment. But consider that signaling is the inescapably social content of macroeconomic policy making. There are at least three audiences for such signals – “the market,” other governments, and “the public.” The fact that macroeconomic policy making involves signaling is not difficult to understand within a rationalist theoretical framework. However, a sociological perspective on the information content of macroeconomic policies allows us to understand better how to evaluate the fact that the signaling effects of various policies vary across countries and over time. For example, research conducted under the auspices of the European Central Bank (ECB) has argued that signaling understood as rationalists portray the process, offers an insufficient model of how market participants coordinate their actions. As the ECB put it, claims concerning signaling “rest on the assumption that financial markets use information efficiently and form expectations rationally. From such a perspective greater transparency should reduce forecast errors and is welfare improving almost by definition.” Unfortunately, signaling hinges on transparency and “transparency hinges on a shared mode of interpretation,” which is not given by market structure. Moreover, transparency has many aspects, such as openness, clarity, understanding, and honesty. The problem is of course that there are no necessary connections between any of these elements, and they can in fact work at counterpoint to one another. Increasing information may serve to lower clarity if understanding is imperfect, while honesty may become a problem despite clarity, again if understanding is not common between the senders and the receivers. In short, stability supposes common knowledge, and this is not simply a function of transparency. Interpretation and intersubjectivity are again necessary parts of any explanation. Monetary and fiscal policies, capital and labor market regulations, and trade policies all are actions that lead to inferences by markets, other governments, and societies. Those inferences have depended on the social context, however. Capital controls provide one example. Between, roughly, 1890 and 1914 capital controls were unusual and unorthodox. By 1944, however, with the financial crises of the 1920s and 1930s in their minds, policy makers around the world considered capital controls orthodox, and the markets followed suit. All developed, capitalist countries employed capital controls during the late 1940s, and both governments and markets expected them to continue to do so for the foreseeable future. By 1998, many governments and important financial institutions, as well as international organizations, in the world economy had come to see capital controls as unorthodox, even heretical. Capital controls had gone from signaling heresy in 1913, orthodoxy in 1944, and heresy again in 1998. That any economic policy will lead to inferences by others, and indeed must lead to inferences if they are supposed to produce the expected outcome, the content of those inferences is defined by the prevailing norms of the international economy. The norms that govern the international economy are often constitutive – that is, they lead to specific inferences about just what kind of state is implied by a set of economic policy practices. These norms are often informal, with their legitimacy defined by the interaction of markets and governments. But the legal rules of international organizations for their members also influence the development of those norms. The Organization for Economic Cooperation and Development (OECD), for example, helps to define the policy practices of “developed” countries. The European Union (EU) and its acquis, as well as the Copenhagen criteria for new members (democratic, market-based, respecting of human rights), sets the boundaries for legitimate and illegitimate policy practices of “European” governments. And the World Trade Organization (WTO) and International Monetary Fund (IMF) define the practices of “market” economies in trade and money. As those organizations informal norms and formal rules change over time, so do the constitutive norms of the categories of states they describe. A “European” state in 1960 could regulate capital flows, run budget deficits of four percent of GDP, devalue its currency regularly, and protect domestic industry and agriculture with tariffs and nontariff barriers. But a “European” state in 2004 could engage in not a single one of those policy practices and still be considered – by markets, by the European Commission, by other EU members – “European.” The constitutive norms of the international economy thus implicate specific state identities. As Peter Katzenstein summarizes, “State identities are primarily external; they describe the actions of governments in a society of states. National identities are primarily internal; they describe the processes by which mass publics acquire, modify, and forget their collective identities.” The content of state identities is inextricably bound up with the constitutive norms of international society that define it. National identities, on the other hand, are sui generis. The content of those identities can be both purposive and cognitive. The purposive content of national identities helps to assign meaning and purpose to patterns of economic activity. It is a straightforward analytical exercise to explore how societies, informed by their collective sens
e of self, may interpret the material reality of the world economies in vastly different ways, and thus reach divergent conclusions about which policies provide the appropriate solution. The interpretation of economic interdependence is a useful example. When the Soviet Union collapsed, some post-Soviet societies interpreted economic dependence on Russia as a threat to national security, while others saw it as a reason for further integration. There was no disagreement among any of these policy makers about what the material facts of the world economy were; they disagreed only about what they meant. Another way that national identities influence economic policies is from the cognitive content embedded within them. Through this theoretical lens it is clear that policy makers may have hold very different understandings of how the world works, or what might be thought of as the causal connections among various material facts. As noted above, such different understandings may lead agents to make essentially dissimilar choices in essentially similar circumstances, something rationalist theories are some of the time wont to explain. Input Mechanisms: Persuasion, Manipulation and Socialization In addition to what one might term the output side of construction where norms and identities operate, we see three main mechanisms of social construction on what might be thought of as the input side of social construction: the micro mechanisms through which such constitutive elements as identity and norms of behavior are themselves constructed. We call these mechanisms persuasion, socialization, and manipulation. This may not be an exhaustive typology, and there are important variations within these categories, nor are the mechanisms mutually exclusive at a group level. Behind any pattern of collective behavior there might be some individuals who were persuaded into it, some who were socialized, and some who were manipulated. They are, however, mutually exclusive with respect to any individual. To the extent that someone orients her action around some social construct due to persuasion, for example, she is not being socialized or manipulated into that pattern of action. Furthermore, depending on whether (or when and where) we think persuasion, socialization, or manipulation the most common or important mechanisms of social construction, we will have different expectations about how the world “hangs together” and changes. Persuasion: Some constructivist work argues that social construction takes place due to the entrepreneurial action of innovative people. These “carriers” bring new interpretations into an arena and then persuade others to take them up. In general, the actual creation of particular new ideas or norms is not something such arguments (or any constructivist arguments) attempt to explain. Instead they suggest that pre-existing ideas or norms were somehow at least partly delegitimated, making an opening for innovation, but the specific invention of new rules, practices, or symbols is an underdetermined act of agency. Persuasion arguments do then try to explain how other actors were persuaded to accept these ideas or norms, however—the actual steps of social construction. They tend to point either to the sheer force of the new concepts, to some qualities of the carrier, or to the indirect “fit” between the new concepts with existing ideas or norms. A clear persuasion argument must distinguish these reasons for persuasion from the objective functionality or logical inevitability of the new ideas or norms (without necessarily insisting that they are dysfunctional or irrational). To argue that Keynesianism spread just because it clearly solved tangible problems would obviously not be a constructivist argument. Instead constructivists might argue that people were persuaded by Keynesianism due to its relative elegance and simplicity, or due to its relatively simple connection to experiences in the Great Depression. Similarly, it would not be very constructivist to argue that a norm spread because it directly made its early advocates highly successful in tangible ways, leading to imitation. Instead constructivists might argue that carriers were generally successful people and so were seen as generally worthy of imitation, empowering them to persuade others even on points that had no logical relationship to their own success. Claims about persuasive social construction also depend on the same kind of separation vis-à-vis existing ideas or norms—emphasizing indirect rather than direct “fit.” If new behavior is just a logical extrapolation of earlier beliefs then no new persuasion has taken place. Instead a persuasion argument might show that earlier ideas or norms supported the new ones without logically requiring them. For example, the well-established rule of law in postwar Europe did not logically require that new supranational institutions include a powerful European Court of Justice. Once the ECJ was created, however, norms about the legitimacy of law helped strengthen the European institutions more broadly. Skeptics were eventually persuaded to accept new institutions partly due to their indirect fit with earlier norms. Once we argue that a norm or idea spread through persuasion, we imply a certain view of the socially-constructed outcome. Persuasion implies that most people come to relate to the new norm or idea in a relatively conscious, affective, internalized, coherent way. If someone believed one thing and then was persuaded of something else, we know that she did not follow the latter simply because she never conceived of alternatives. This in turn implies to some degree that she affectively values the new idea or norm: she knew of other beliefs and chose this one because she “likes it” in some sense. It also implies internalization rather than socialization to the extent she was persuaded to value something while aware of alternatives. The agent is more likely to maintain that belief or norm when she leaves her home context and confronts other alternatives. In broad terms, the more her ideas and norms are consciously valued and internalized—the more they are the result of persuasion—the more we would expect her overall package of social constructs to be coherent. She has thought about her positions, at least to some degree, and endorsed them. Manipulation: This mechanism is less common in the constructivist literature, though it connects strongly to a good deal of broader scholarship on culture. It suggests that carriers may use some sort of power to impose a new idea or norm on others, but that then these “recipients” rationalize the new idea or norm and forget that they ever questioned it. Even if the latter subsequently gain the power to alter their behavior, they take the new norm or idea for granted. Beliefs or practices that were once contested (or at least not spontaneously and broadly accepted) become background elements of a sociallyconstructed landscape. It is understandable that many constructivists have shied away from such thinking. The first part of this two-part mechanism—the step that in which the real manipulation occurs—features exactly the kind of dynamics constructivism arose to challenge: an emphasis on the preferences of powerful actors in the generation of patterns of action. Yet the second part, in which these new patterns are rationalized as “necessary” or simply come to be ignored, portrays a process that is no less ideational or cultural than persuasion or socialization. While first-generation constructivism has implicitly favored mechanisms that accord a less direct role to power and conscious maneuvering, such processes fit with much of the constructivist literature. Indeed, manipulation and rationalization may provide one of the most plausible links between scholarship on carriers who create or import new ideas (again, the focus of the “ideas” literature) and scholarship on the effects of ideas or norms once institutionalized (the focus of most work that is explicitly known as constructivism). As theorists in the “ideas” tradition repeatedly remark, ideas mat
ter most obviously when powerful actors espouse them and use their authority or resources to impose them on others. If we can show first that a powerful actor’s agenda is meaningfully “ideational”— reflecting beliefs or norms, though not yet widely-institutionalized ones, rather than simple material positioning— and then that other actors ultimately rationalize things this powerful actor forces them to accept, the result is clearly a constructivist story. Moreover, this kind of mechanism arguably connects better to the last several decades of theorizing on culture than does a persuasion-based view. Once we argue that a norm or idea enters social construction through manipulation and rationalization, we imply that most people relate to the new norm or idea in a relatively unconscious, cognitive, weakly internalized, potentially incoherent way. As discussed above when dealing with the notion of acting on one’s interest, if someone follows a belief or norm because he has simply rationalized it as a hard-to-alter fait accompli, he has never been persuaded that it is the best way to think or act. To the contrary, he orients his thinking around it only because he never had the opportunity to establish alternatives, and has either forgotten that alternatives once existed or never knew of them to begin with. He does not really value the norm or idea, and may even be able to step back and critique it somewhat—but he finds it difficult to conceive of shifting to alternatives. Since he has no strong conscious reasons about why his pattern of action is better than alternatives, his overall package of beliefs and norms is likely to be relatively incoherent. Socialization: The mechanism that stands behind most of the current constructivist literature— sometimes explicitly, usually implicitly—suggests that norms or ideas spread in a relatively incremental, evolutionary way generated by repeated interaction within groups, as argued in the above regarding the notion of conventionally based behavior. A group of people come together in interaction. They could interact in a wide variety of ways, but either through accident, deliberation, or initial innovative leadership they orient themselves around certain norms or beliefs. Action becomes increasingly robustly embedded in the norms or beliefs over time. The social constructs are not entirely static, however, since norms and beliefs may be constantly reshaped on the margins as they are reproduced. Relative to persuasion and manipulation, social construction by socialization is a decentralized, collective, consensual mechanism. Persuasion and manipulation both posit strongly-driven carriers who cajole or force others to reorient their beliefs, norms, or identities. Socialization suggests a more diffuse process in which a group of people work their way collectively to certain norms or ideas. It implies relatively low levels of contestation and variation within the group, since such irregularities would disrupt the repetitive rehearsing or “social learning” by which it posits that norms and ideas enter individual thinking and action. This in turn makes socialization more distinct from power and politicking than persuasion or manipulation; it does not depend on carriers with unusual authority, resources, entrepreneurial spirit, or charisma for social construction to happen. If social construction by socialization stands apart from persuasion and manipulation for its relatively de-centered, and fundamentally social process, it stands conceptually between them in its implications about the resulting relations between action and social constructs. In strict logical terms socialization could produce individualsocial relations that were mainly affective (and so relatively conscious, internalized, and coherent) or mainly cognitive (and so relatively unconscious, weakly internalized, and potentially incoherent). Agents interacting in a group might reinforce each other’s values and reasons consciously by reiterating them—effectively persuading each other to converge on similar affective positions—or might increasingly rationalize prevailing group practices as necessary and taken-for-granted. We think constructivists need to be as specific as possible about which of these input mechanisms (or conceivably others) accounts for the alignment of particular individuals on certain ideas, norms, or identities. This does not mean, however, that any argument about social construction must affiliate parsimoniously with one mechanism. As noted above, the mechanisms are exclusive at individual but not group levels. If someone was persuaded to align on a new norm then she was not socialized or manipulated—but other people who aligned on the same norm may well have done so differently. Indeed, at the group level the mechanisms may often be most powerful in combination. This is most obvious with manipulation, which in most instances will depend on the initial presence of two kinds of actors who relate to social constructions in different ways: persuaded “carriers” (who are presumably relatively conscious, affective, internalized champions of an idea or norm even before it is institutionalized, and may retain a more conscious and affective relationship to it thereafter) and the “recipients” of manipulation and rationalization (who start out with no interpretive relationship to the new ideas or norms, but are eventually maneuvered into a more cognitive relationship to the institutionalized constructs). Persuasion-style accounts are less likely to feature different qualitative relationships to social constructs, with both carriers and recipients being “believers” in relatively affective and conscious ways. Still, such arguments at least posit temporal variation in these relationships across groups, with the “persuaders” believing in the new ideas or norms before recipients do. Socialization implies the least variation in dynamics across a group: individuals work their way into social constructs in a more even collective pattern. But especially as groups get large and interaction more distant or episodic, it is easy to imagine that behind a well-established social construct might be some people who have been persuaded of it, some who were manipulated into rationalizing it, and some who have been socialized into it. Several different mechanisms could underlie an outwardly uniform pattern of behavior. Thus concrete constructivist arguments could vary in the mechanism by which certain individuals come to act within a social construct, and in the mix of such mechanisms by which a group of people does so. The broadest level of substantive variation within constructivism—the level at which constructivists might separate into different schools of thought—will then concern which overall patterns of these mechanisms tend to dominate certain kinds of arenas or interaction (or perhaps, for the most ambitious theorists, political action overall). Constructivists who see a great deal of socialization will tend to have an incremental, evolutionary, relatively consensual and uncontested view of political dynamics and change. Those who see a world dominated by persuasion will tend to see order and change in terms of punctuated equilibria, with crises delegitimating previous thinking and charismatic innovators forging new order (à la Weber). Those who see widespread patterns of manipulation and rationalization will tend to see an inherently contested world, with instrumental maneuvering going on within overlapping, logically incoherent, taken-for-granted bounds. The incoherence of these bounds may itself be a source of change. Of course the most nuanced theoretical positions will likely be ones that mix and qualify such generalizations, arguing that certain kinds of interaction or actors tend toward certain mechanisms. But whatever the level of these debates—over specific instances, patterns of interaction, kinds of actors or arenas, or political action overall—they will be the discussions in which constructivists actually make commitments and contributions about how the world works. It is to these
contributions that we now turn. See John Gerard Ruggie, “What Makes the World Hang Together? Neo-Utilitarianism and the Social Constructivist Challenge,” in his Constructing the World Polity (London and New York: Routledge, 1998), pp. 12-13. Ruggie draws on Emile Durkheim, The Rules of Sociological Method, ed. E. G. Catlin (New York: Free Press, [1895] 1938) and John Searle, The Construction of Social Reality (New York: Free Press, 1995). Being a member of a particular religious group has clear causal consequences, but there is nothing “real” about religion. After all, it is based upon faith. John Gerard Ruggie, “What Makes the World Hang Together? Neo-Utilitarianism and the Social Constructivist Challenge,” pp. 12-13. Mark Blyth, “Structures do not Come with an Instruction Sheet: Interests, Ideas and Progress in Political Science,” Perspectives on Politics 1 (4), December 2003 pp. 695-703. See Peter J. Katzenstein, Robert O. Keohane, and Stephen D. Krasner, “International Organization and the Study of World Politics,” in Exploration and Contestation in the Study of World Politics, ed. Katzenstein, Keohane, and Krasner (Cambridge, Mass.: MIT Press, 1999), pp. 38-39. Douglass North, “Institutions,” Journal of Economic Perspectives, vol. 5, no. 1 (1991), pp. 97 -112; and North, Institutions, Institutional Change, and Economic Performance (Cambridge: Cambridge University Press, 1990); Arthur T. Denzau and Douglass C. North, “Shared Mental Models: Ideologies and Institutions,” Kyklos, vol. 47, no. 1 (1994), pp. 3-31, at p. 4. See, for example, Frank Dobbin, “The Sociological View of the Economy,” in The New Economic Sociology, ed. Frank Dobbin (Princeton, N.J.: Princeton University Press, 2004); Mark Granovetter, “Economic Action and Social Structure: The Problem of Embeddedness,” American Journal of Sociology, vol. 91, no. [WHICH] (1985), pp. 481-510; James G. March and Johan P. Olsen, Rediscovering Institutions (New York: Free Press, 1989); Walter W. Powell and Paul Di Maggio, eds., The New Institutionalism in Organizational Analysis (Chicago: University of Chicago Press, 1991); Joel M. Podolny, “Market Uncertainty and the Social Character of Economic Exchange,” Administrative Science Quarterly, vol. 39, no. 3 (1994), pp. 458-483. Dobbin, “The Sociological View of the Economy,” p. 4. Martha Finnemore and Kathryn Sikkink “Taking Stock: The Constructivist Research Program in International Relations and Comparative Politics” HYPERLINK “http://arjournals.annualreviews.org/loi/ polisci”Annual Review of Political Science Volume 4, pp. 391-416, June 2001. We would like to point out that the label “constructivist” is irrelevant to us, but it has become a useful shorthand for describing the sociological and cognitive turn in a number of disciplines. We use it essentially as a synonym for “ideational” and include any argument that focuses on interpretive ideas, norms, identities, practices. In short, we think that the direct reference to social construction in “constructivist” makes it a relatively elegant and meaningful label for such arguments Kenneth N. Waltz Theory of International Politics (Reading, Mass.: Addison-Wesley Pub. Co.) 1979. See especially Peter J. Katzenstein, Cultural Norms and National Security (Ithaca, N.Y.: Cornell University Press, 1996); and Peter J. Katzenstein, ed., The Culture of National Security: Norms and Identity in World Politics (New York: Columbia University Press, 1996). Stephen D. Krasner, Sovereignty: Organized Hypocrisy (Princeton, N.J.: Princeton University Press, 1999). See for example, Alastair Iain Johnston, Cultural Realism (Princeton: Princeton University Press 1995); Gideon Rose,. “Neoclassical realism and theories of foreign policy” World Politics Volume 51, Number 1, October 1998, pp. 144-172. David A. Baldwin Neorealism and Neoliberalism: The Contemporary Debate. New York: Columbia University Press (1993). Jeff Legro and Andrew Moravcsik, “Is Anybody Still a Realist?” International Security, 1, vol. 24, no. 2, pp. 5-55(51), October 1999 By which we mean rationality as consistency and constrained optimization, nothing more. HYPERLINK “http://mitpress.mit.edu/catalog/author/default.asp?sid=B1BE3BF6-A6D4-4438 -9E24-31BF3F53FB77&aid=13898″Barbara Koremenos, HYPERLINK “http://mitpress.mit.edu/catalog/ author/default.asp?sid=B1BE3BF6-A6D4-4438-9E24-31BF3F53FB77&aid=844″Charles Lipson and HYPERLINK “http://mitpress.mit.edu/catalog/author/default.asp?sid=B1BE3BF6-A6D4-4438-9E24 -31BF3F53FB77&aid=9491″Duncan Snidal, The Rational Design of International Institutions: An International Organization Reader (Boston: MIT Press 2003) Katzenstein, ed., The Culture of National Security. David A. Moss and Sarah A. Brennan, National Economic Accounting: Past, Present, and Future, Harvard Business School case no. 703-026 (2003). Paulette Kurzer Business and Banking: Political Change and Economic Integration in Western Europe (Ithaca: Cornell University Press 1994); Herman Schwartz, “Small States in Big Trouble: The Politics of State Reorganization in Australia, Denmark, New Zealand and Sweden in the 1980s,” World Politics 46:4, July 1994, pp. 527-555; Philip Cerny The Changing Architecture of Politics: Structure, Agency and the Future of the State (Sage, 1990). See for example Vivien Schmidt The Futures of European Capitalism (Oxford: Oxford University Press 2002); Peter A. Hall and David Soskice (eds.) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Oxford: Oxford University press 2001) Colin Hay and Ben Rosamond ‘Globalisation, European Integration and the Discursive Construction of Economic Imperatives’, Journal of European Public Policy 9 (2), (2002) pp.147-167 This is a common theme among the work of the three of us. See Rawi Abdelal National purpose in the world economy: post-Soviet states in comparative perspective (Ithaca: Cornell University Press 2001); Mark Blyth Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century (Cambridge: Cambridge University Press 2002); Craig Parsons A Certain Idea of Europe ((Ithaca: Cornell University Press 2003). Dobbin, “The Sociological View of the Economy,” p. 2. I refer here to the different decisions taken by the Swedes and the Germans in the interwar period. See Sheri Berman The Social Democratic Moment (Cambridge: Harvard University Press 1998) A correlate of complete information, situations of certainty, is discussed below. All we are really saying is “because they wanted to do it, they did it, and because we know they did it (assuming everyone acts on their own best interests) this shows they wanted to do it.” For elaborations of this basic theme see, Isaac Levi, Hard Choices: Decision Making under Unresolved Conflict (New York: Cambridge University Press, 1986); and Donald Davidson, Essays on Actions and Events (Oxford: Clarendon Press, 1980). Alexander Wendt, The Social Theory of International Politics (New York: Cambridge University Press 1999) Social Theory, p. 124. That is, uncertainty applies to agents’ strategies, not their interests, and is a product of the difficulty of assigning probabilities to outcomes, plus the processing of information needed to gauge probabilities in the first instance. Blyth, following Beckert, has termed this Knightian Uncertainty. Mathematicians call it “wild type” uncertainty. North, Institutions, Institutional Change and Economic Performance, p. 25. Jens Beckert, “What is Sociological about Economic Sociology? Uncertainty and the Embeddedness of Economic Action,” Theory and Society 25 (6) (1996), p. 814, my italics. As argued in Blyth Great Transformations… The following thought experiment and the insights it suggests are drawn from the work of Nassim Taleb Fooled By Randomness: the Hidden Role of Chance in Markets and in Life (New York: Thomson Texere 2004) and Nassim Taleb and Avital Pilpel “On the Very Unfortunate Problem of Not Observing Probability Distributions” (2004) Unpublished Manuscript available at http:// www.fooledbyrandomness.com/. This is seems especi
ally germane if one remembers that when sampling past data an increase in the sample of (x) increases the confidence level by the square root of (x). Taleb and Pilpel, “On the Very Unfortunate..” p. 2. For an argument that it can see Nassim Nicholas Taleb Fooled By Randomness… All of these examples are taken from Taleb and Pilpel, ”On the Very Unfortunate…” pp. 9-22. Taleb and Pilpel, “On the Very Unfortunate…” p. 10 Taleb and Pilpel, “On the Very Unfortunate…” p. 14. In the 1960s balance of payments disparities were the supposed source of inflation. In the 1970s technological obsolescence, the social limits to growth, money supply excess, and government largess were all to blame. By the 1980s labor market rigidities were to blame, whereas by the 1990s a lack of financial market credibility was the villain of the piece. Inflation, it seems, can be many things to many people. See Matthew Watson, “The Institutional Paradoxes of Monetary Orthodoxy: Reflections on the Political Economy of Central Bank Independence,” The Review of International Political Economy vol. 9, no. 1 (2002), pp. [GET PAGES]. Taleb and Pilpel, “On the Very Unfortunate…” p. 16 Hence the logic that “more cases is better.” Formally, E(X) is within some small distance of E(Xn). Taleb and Pilpel, “On the Very Unfortunate…” p. 19. Taleb, Fooled by Randomness, pp. 240, 242-3. As Taleb and Pilpel put it, “many economists dismiss the possibility of assumption #4 [our fourth world]. We claim that, unfortunately, in economic situations, generators of this type can occur.” See Taleb and Pilpel, “On the Very Unfortunate…” p. 22. Unfortunately they are not rare. See Beniot Mandlebrot and Richard L. Hudson The Misbehavior of Markets (New York: Basic Books 2004) Philip Coggan “The Long View: The End of Normality,” Financial Times, July 2 2004. See for example, Joseph Stiglitz, “Sound Finance and Sustainable Development in Asia” Keynote Address to the Asia Development Forum by the Senior Vice President and Chief Economist The World Bank, Manila, the Philippines, March 12, 1998 Example taken from Nassim Taleb, The Black Swan, forthcoming, As Karl Popper put it, if human knowledge is causal, and we do not know what we will know in the future, then any assumption about future states of the world must necessarily be incomplete. [CITE?] John Maynard Keynes, “The General Theory of Employment,” Quarterly Journal of Economics, vol. 51, no. 2 (1937), pp. 213-4. Keynes, “The General Theory of Employment,” p. 214. Similarly, as Keynes summarizes the General Theory, “we can regard our ultimate independent variables as consisting of…three fundamental psychological factors, namely, the psychological propensity to consume, the psychological attitude to liquidity and the psychological expectation of future yield from capital assets.” John Maynard Keynes, The General Theory of Employment Interest and Money (New York: Harcourt Brace 1936) pp. 246-7. Keynes, The General Theory, p. 148. For discussion of this problem of conventionally based knowledge see Hillary Putnam, Reason, Truth and History (Cambridge: Cambridge University Press, 1981), esp. pp. 103-126; David Wayne Parsons, “Was Keynes Khunian? Keynes and the Idea of Theoretical Revolutions,” British Journal of Political Science vol. 15, no. 2 (1981). As Hahn and Solow put it, “The way the economy actually does work can depend on the way agents believe the economy to work … [and] … the way the economy responds to a policy move by the government can depend on the interpretation that other agents place on it, and therefore on the beliefs about the way things work …. If participants believe that every increase in the money supply will be fully translated into the price level, irrespective of any other characteristics of the situation, then they are likely to behave in ways that will make it happen.” Frank Hahn and Robert Solow, A Critical Essay on Macroeconomic Theory (Oxford: Blackwell Publishers, 1995), p. 150 This is not, we repeat, to say that the entire economy is some kind is social fiction, it is not. But it is to say that the independence we assume that exists between our actions and our observations in the material world may in fact be much more attenuated in the economic world given that how we think about acting shapes our actions and hence the outcomes we observe. There is an interdependence of outcome and observation, not an independence. See for example Kathryn Sikkink’s explanation of the relative failure of industrialization drives in Argentina compared to Brazil. Sikkink argues that the fact that the Argentine bourgeoisie did not trust the state meant that investment expenditures were treated with skepticism rather than seems as signals to ‘up’ investment and output. Kathryn Sikkink Ideas and Institutions: Developmentalism in Brazil and Argentina (Ithaca: Cornell University Press 1991). For a similar argument concerning the failure of ISI in India see Vivek Chibber Locked in Place: State Building and Late Industrialization in India (Princeton: Princeton University Press 2003). Moreover, it is probably safer to assume that publics do not, rather than do, operate in accord with the nostrums of rational expectations theory. Certainly that is the major upshot of several decades of empirical public opinion research. Again, as Hahn and Solow note, “It may be worth noting that one of the ways in which governments influence the economy is by propagating theories about the economy.” Hahn and Solow, A Critical Essay, p. 150. For example, if agents believe that deficits cause inflation then deficits will cause inflation because like central bank watching, the belief becomes self-fulfilling. If this claim seems problematic consider that during the 1980s the United States federal budget deficit grew fourfold while inflation fell threefold simultaneously. Despite this, investors, especially in the bond market, still acted as if deficits caused inflation and demanded higher real effective interest rates despite falling inflation. Conventions, as well as fundamentals, matter. For a similar argument regarding movements on foreign exchange markets see Gregory P. Hopper, “What Determines the Exchange Rate: Economic Factors or Market Sentiment?” Federal Reserve Bank of Philadelphia Business Review (Sept. Oct. 1997), This is different from contemporary “cascade” and “mimicking” hypotheses employed in macroeconomics since these are strategies employed by rational agents with given interests. Keynes, The General Theory, p. 152, my italics. In fact, certain behavior may be produced simply because the governing convention dictates it. The European Central bank warding off an inflation twenty years after it was defeated serves as on example. Leonardo Bertolini and Allan Drazen, “Capital Account Liberalization as a Signal,” American Economic Review, vol. 87, no. 1 (1997), pp. 138-154; and Geoffrey Garrett, “The Causes of Globalization,” Comparative Political Studies, vol. 33, nos. 6/7 (2000), pp. 941-991. As Winkler puts it “In world where – unlike in most standard economic models – cognitive limits matter, more information and greater detail does not by itself translate into greater transparency and better understanding.” Bernhard Winkler “Which Kind of Transparency? On the Need for Clarity in Monetary Policy-Making” European Central Bank Working Paper Series, Number 26, August 2000, p. 18. Winkler “Which Kind of Transparency….” p. 9 Winkler “Which Kind of Transparency….” p. 5. Winkler “Which Kind of Transparency….” p. 8. For example, the IMF may mandate common standards in banking, but if those common standards are regarded as an imposition by other local bankers then the meaning of ‘adhering to international standards’ may be radically different among the two groups. How then are such confusions to be avoided? Nor does this mean the same thing as common knowledge in game theory. Rawi Abdelal, Capital Rules: Norms, Institutions, and the International Monetary System, book ms.. Peter J. Katzenstein, “United
Germany in an Integrating Europe,” in Tamed Power: Germany in Europe, ed. Katzenstein (Ithaca, N.Y.: Cornell University Press, 1997), p. 20. Rawi Abdelal, Yoshiko Herrera, Alastair Iain Johnston, and Rose McDermott, “Identity as a Variable,” Harvard Identity Project, January 14, 2005. Rawi Abdelal, National Purpose in the World Economy (Ithaca, N.Y.: Cornell University Press, 2001). On political economy, see Yoshiko Herrera, Imagined Economies (Cambridge: Cambridge University Press, 2005). In security studies, see Alastair Iain Johnston, Cultural Realism (Princeton, N.J.: Princeton University Press, 1995) and Elizabeth Kier, Imagining War (Princeton, N.J.: Princeton University Press, 1997). This kind of argument is particularly prominent in the context of European Union political economy, as in Neil Fligstein and Iona Mara-Drita, “How to Make a Market: Reflections on the Attempt to Create a Single Market in the European Union,” American Journal of Sociology 102:1 (1996), 1-33; Nicolas Jabko, “In the Name of the Market: How the European Commission Paved the Way for Monetary Union,” Journal of European Public Policy 6:3 (1999), 475-95. See Blyth Great Transformations…; Berman The Social Democratic Moment… As the preceding discussion of risk and uncertainty implies, constructivist arguments need not imply irrational actors. In a world of pervasive uncertainty even highly rational agents would depend on social constructions to orient their action. Epistemic community arguments tend to invoke this kind of mechanism as well. The legitimacy of science sometimes accords persuasive power to experts. Emmanuel Adler and Peter Haas, “Epistemic Communities, World Order, and the Creation of a Reflective Research Program,” International Organization 46:1 (1992): 367—90. One example arises as part of the “boomerang model” of norm development and influence developed by Margaret Keck and Kathryn Sikkink. In this process international actors are the carriers with some power to put tangible pressure on recalcitrant domestic regimes; at first domestic leaders reluctantly give some ground to international pressure, and later on internalize the new norms to some degree. See Margaret Keck and Kathryn Sikkink, Activists Beyond Borders: Advocacy Networks in International Politics (Ithaca: Cornell University Press, 1998) and Thomas Risse, Stephen Ropp, and Kathryn Sikkink, eds. The Power of Human Rights: International Norms and Domestic Change (New York: Cambridge University Press, 1999). For a different variant of manipulation, see Craig Parsons, A Certain Idea of Europe (Ithaca: Cornell University Press, 2003). Peter Hall, ed. The Political Power of Economic Ideas: Keynesianism Across Nations (Princeton, 1989); Kathryn Sikkink, Ideas and Institutions: Developmentalism in Argentina and Brazil (Ithaca, 1991); Judith Goldstein and Robert Keohane, eds. Ideas and Foreign Policy (Ithaca, 1993); Sheri Berman, The Social Democratic Moment: Ideas and Politics in the Making of Interwar Europe (Cambridge, 1998). The best empirical study of such a phenomenon remains arguable Matthew Crenson The Unpolitics of Air Pollution: A study in Non-decision making (Baltimore: The Johns Hopkins University Press 1971) . This is precisely the broad view of culture espoused by “practice theory” in sociology since the 1970s, and also the parallel and related shift from Parsonian, affective views of culture to the cognitive, taken-for-granted logic of “new sociological institutionalism.” Pierre Bourdieu, Outline of a Theory of Practice (New York: Cambridge University Press, 1977); Ann Swidler, “Culture in Action: Symbols and Strategies,” American Sociological Review 51:2 (1986), 273-286; Paul DiMaggio and Walter W. Powell, “Introduction,” in DiMaggio and Powell, eds. The New Institutionalism in Organizational Analysis (Chicago: University of Chicago Press, 1991),1-38; Richard Biernacki, The Fabrication of Labor: Germany and Britain, 1640-1914 (Berkeley, CA: University of California Press, 1995). If socialization does not logically require a certain view of the affective/cognitive divide, however, it has a historical relationship to the former. As displayed most obviously in Parsonian sociology (and in political-science work based on it, like the “civic culture” literature), cultural approaches that emphasize socialization have tended to conceive of social constructs in relatively affective, internalized terms. See Gabriel Almond and Sidney Verba, eds. The Civic Culture (Princeton, NJ: Princeton University Press, 1963); DiMaggio and Powell 1991. Manipulation would be less dependent on such distinct relationships (affective carrier-champions and cognitive recipients) in a case where contestation is low and active alternatives are few or non-existent. That is, powerful actors might impose new norms without being very consciously or affectively connected to them. A clear (if extreme) example would be an absolute ruler imposing some new practice on a whim. As example, an argument that seems to incorporate all three mechanisms at different stages (if a bit implicitly) is featured in Finnemore and Sikkink’s discussion of “international norm dynamics.” They suggest a “life cycle” of norms that begins with persuasion of key actors by “norm entrepreneurs.” This is followed by a combination of socialization and manipulation/rationalization processes that lead broad populations to align on the new norms. Martha Finnemore and Kathryn Sikkink, “International Norm Dynamics and Political Change,” International Organization 52:4 (Autumn 1998), 887-917. The same point applies to how a single individual comes to relate to multiple social constructs. People might be persuaded of some things (to which they relate in a relatively conscious, affective, strongly internalized, coherent way), manipulated into others (which they take for granted in an unconscious, cognitive, weakly internalized, fairly incoherent way), and socialized into others (to which they could relat

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