International Institutions Are No Longer

¶ … International institutions are no longer effective in regulating the contemporary international economy

The processes that are driving globalization today are certainly not new, but they have become some incredibly accelerated and dynamic that many of the mechanisms that have evolved over the years to help regulate this commerce are no longer sufficient to provide the oversight and administration needed to ensure a smooth flow of international commerce. Furthermore, even those international institutions that have not been overwhelmed by the pace of change in recent years are finding themselves increasingly ineffective and irrelevant in a globalized marketplace. Indeed, the emergence of non-state actors and rogue states within the international community has represented a fundamental challenge for international institutions in recent years. In many cases, though, these organizations are unwilling or unable to meet these challenges, and these trends are clear. This paper provides an overview of the forces at play in the international community today as they affect the contemporary international economy, followed by a discussion of the current trends affecting international institutions in the 21st century. Finally, an analysis of what impact on these events and trends has had on international institutions is followed by a summary of the research and salient findings in the conclusion.

Review and Discussion

Background and Overview.

According to McBride and Wiseman (2000), although the process of globalization is actually as old as mankind itself, the introduction of innovations in communication and transportation in recent years has accelerated the process beyond anyone's ability to gauge its impact today. "Despite the rapidly growing body of literature on the topic of globalization and its implications," the authors advise, "there is disagreement about how to conceptualize what is happening. Although the term is widely used to characterize the profound changes unfolding in the world, the nature of these shifts and what they mean remain debated questions" (p. 9). Nonetheless, the processes that are currently fueling the drive toward globalization appear to be inexorable and represent powerful forces for change in the coming years. In this regard, Debrah and Smith (2002) point out that, "The globalization trend which achieved much prominence towards the end of the last century is set to gather pace, to transform the workplace, to change employment relations and, indeed, our way of life. With the recent advances and innovations in technology, we seem to be racing down an unpaved road towards a globalized world" (p. 1). In fact, just like an extended family with some "crazy uncles" no one likes to talk about, this globalized world community is going to be facing some new challenges and unexpected obstacles in the coming years from various rogue states and international pariahs.

In this regard, Danks and Kennedy (2001), the growing body of research into contemporary cultural identities and social change is filled with accounts of fundamental transitions and disruptions in the social order around the world today that are being caused by globalization. For instance, these authors emphasize that, "Societies are fragmenting and disintegrating; their internal structures are becoming dis-assembled and merged into the maelstrom of the 'global post-modern.' The boundaries of societies and cultures are being breached by vast, criss-crossing flows of ideas, images and information, their former impermeability lost forever. Communities, once invested with deep meanings and encapsulating close-knit relations, are becoming de-localized -- torn from familiar and particular places" (Danks & Kennedy, 2001, p. 1).

The phenomenon of globalization has been defined as "the process by which the experience of everyday life, marked by the diffusion of commodities and ideas, can foster a standardization of cultural expressions around the world" (Watson, 2006, p. 21). The dilution of cultural expression around the world is the least of mankind's worries when it comes to the effectiveness of international institutions in administering the emerging globalized economy, though. For example, Detomasi (2002) reports that one of the biggest challenges represented by the processes fueling globalization has been the diminution of the established mechanisms of domestic and international governance:

Globalization has eroded the boundaries between various elements of governance authority; particularly those that are either purely issue or geographically based. This has been observed in the apparent weakening of formal state authority -- the erosion of sovereignty -- but it is also apparent in the governance of international institutions, particularly those designed to monitor and regulate individual aspects of the international economy. (Detomasi, 2002, p. 421)

International institutions that are responsible for regulation of global affairs such as the World Trade Organization (WTO), the International Monetary Fund (IMF), and the World Bank have found it increasingly difficult to assert the same levels of issue-specific governance authority they enjoyed in the past, due in large part because such assertions have important impacts on areas falling outside the issues themselves. "The phenomenon of globalization has eroded the independent authority of traditional governance institutions while simultaneously making islands of issue-specific governance theory increasingly untenable" (emphasis added) (Detomasi, 2002, p. 421). These points are also made by O'Brien (2002) who writes that the same processes that are driving globalization are causing the role of the state to be reshaped and reduced, but that the Old Guard institutions are not up to the task facing the international community today. According to this author, after the United Nations was established, a number of other international institutions were created to help administer economic and social policy-making. "In 1947," he reports, "43 such bodies were accredited to the Economic and Social Council (ECOSOC). In 1992 at the Rio de Janeiro Environment Summit, 635 ECOSOC-accredited non-governmental organisations plus 293 other organisations were accorded observer status --a total approaching 1000 in all" (O'Brien, 2002, p. 15). During the last two decades of the 20th century, though, these international institutions proved time and again that they were incapable of addressing the growing problems facing them, in some cases, they even made things worse (O'Brien, 2002).

According to McGinnis (2004/2005), policymakers and citizens alike are increasingly questioning the desirability of assigning previously held responsibilities over which individual nations exercised sovereignty to international institutions that may not have their best interests in mind. For instance, McGinnis asks, "How much power should be given to centralized decision-making as opposed to decentralized decision-making and markets? Should regulatory authority be exercised through democratically accountable mechanisms or elite and bureaucratic ones?" (McGinnis, 2004/2005, p. 41). Further, the types of problems that are facing governmental policymakers today are truly becoming global in character. For example, Burke (1997) points out that, in spite of widespread agreement that freshwater is becoming one of the most urgent environmental problem facing many people today, "There is little reason to believe that any initiatives would achieve more success than the 'Decade of Drinking Water' launched by the UN in the 1970s" (p. 15). These issues, then, have assumed even greater importance in recent years as the number of actors in the international community has increased as a consequence of innovations in transportation and communications technology and the types of problems facing individual countries are becoming global in nature.

Because the international arena is unique and there are countless interests represented, the need for international institutions that can provide an objective forum and a viable mechanism for mediation and reconciliation remains high. Unfortunately, in most cases, the past models have not lived up to the need demanded by the international economy of the 21st century. In this regard, "What is really at stake thus becomes much clearer when more traditional political concepts are used to elucidate such relatively opaque terms as sovereignty, multilateralism, global governance and customary international law" (McGinnis, 2004/2005, p. 41). In this rapidly changing and critical environment, it is little wonder that international institutions are finding it increasingly difficult to maintain pace with the changes that are confronting them, and some would even like things slowed down or reversed, and these issues are discussed further below.

Events and Trends Affecting International Institutions in the 21st Century.

In an increasingly globalized marketplace, there are in fact many more issues to be regulated. Cross-border issues are not new, certainly, but they have become profoundly extended and amplified in recent years so that there are virtually no regions of the world left unaffected by these trends today, and these processes can be expected to continue to accelerate in the years to come. In their book, Whose World Order? Uneven Globalization and the End of the Cold War, Holm and Sorensen (1995) report that as the 19th century drew to a close, the effectiveness of international institutions was already beginning to fade: "With respect to the regulation of transnational activities, economic issues were for a long time the most important" (p. 148). These early international institutions were tasked with the standardization of industrial norms, international institutions designed to restrict the tariff and nontariff barriers for international trade, at establishing a reliable international currency system, and at controlling financial markets (Holm & Sorensen, 1995). According to these authors:

The effectiveness of these institutions decreased as the end of the century came closer.... The rise of interventionist domestic politics led to policies seeking to externalize economic problems by erecting trade barriers and by unilaterally devaluating currencies. As a result, liberal international institutions broke down. Conversely, ineffective international institutions compounded national economic difficulties. (Holm & Sorensen, 1995, p. 148)

Following World War II, the United States assumed a leadership role in developing new types of international institutions. For example, the General Agreement on Tariffs and Trade (GATT) provided for a liberalization of international trade, the Bretton Woods framework created a fixed exchange-rate system (which lasted until 1971), and the International Monetary Fund controlled the flow of credits until the mid- 1970s and once again from the early 1980s thereafter; in addition, these authors note that the EEC institutionalized a free-trade area in the heart of Western Europe at this time (Holm & Sorensen, 1995). According to Mingst (2006) international institutions are defined as those they are comprised of membership from at least three states, having activities in several states, and whose members are held together by a formal agreement. A coordinating body for international institutions, the Union of International Associations, currently distinguishes between the more than 250 international governmental organizations (IGOs) that have been created by intergovernmental agreements and whose members are states, and the approximately 6,000 nongovernmental organizations (NGOs), whose members are associations or individuals (Mingst, 2006). This author points out that, "IGOs range in size from three members to more than 185 (e.g., the United Nations [UN]), and their geographic representation varies from one world region (e.g., the Organization of American States) to all regions (e.g., the International Monetary Fund)" (Mingst, 2006, p. 3). While some types of international institutions were created to achieve a single purpose (e.g., the World Intellectual Property Organization), still others have been established to address a wide range of responsibilities (e.g., the North Atlantic Treaty Organization) (Mingst, 2006).

Furthermore, in recent years, the United States and other countries have witnessed an enormous amount of new international institutions and regulations that are designed to regulate the operations of companies on the Internet; indeed, local and federal governmental institutions (legislatures, regulatory agencies, and courts within and across countries), as well as many national and international non-governmental bodies, are administering current laws as well as implementing new Internet-specific regulations (Jarvenpaa, Tiller & Simons, 2003). For example:

The U.S. Congress has passed Internet laws protecting children (Children's Online Protection Act);

California and other states have passed laws limiting online e-mail advertising know as "spam";

U.S. courts have invoked traditional trademark infringement and trespassing laws to protect incumbent companies from domain name "cybersquatters" and electronic trespassers; and,

The Internet Corporation for Assigned Names and Numbers (ICANN), a non-governmental body, has established global policy on domain name disputes; and the International Electronic Task Force (IETF) has set international technology standards affecting Internet access issues (Jarvenpaa et al., 2003).

These international institutions, though, have in many cases been allowed to deteriorate from a lack of commitment and funding from the sponsoring nations, and new models to assume their responsibilities have not been forthcoming. For example, in his essay, "The Buck Stops Everywhere," Burke (1997) makes the point that, "The world already has an environmental organisation: the United Nations Environment Programme (UNEP), based in Nairobi. Admittedly it has been allowed to fall into disrepair under a corrosive combination of weak leadership and slashed income from governments. It is a perverse outcome of the first Earth Summit that the world has weaker institutions for handling global environmental problems than it had before" (p. 14). Therefore, today, both domestic and international regulatory agencies that must embrace the dynamic online environment are confronted with a broad range of control activities, including legally binding rules coming from governmental institutions as well as technical standards for digital behavior coming from non-governmental and international organizations, or from the businesses themselves. In this regard, Jarvenpaa and his colleagues report that, "Technology standards that enable the web to operate are the most pervasive form of Internet regulation. Any actor that affects the architecture is acting as a regulatory agent on the Internet" (Jarvenpaa et al., 2003, p. 72). Furthermore, these various social, economic, and technical regulations that are becoming commonplace have the capacity to fundamentally affect how companies compete on the Internet, including how they store, protect, share, and commercialize their digital data both internally and externally (Jarvenpaa et al., 2003).

From a public choice perspective, a supply-and-demand-based exchange model of business and regulatory institutions where regulators are seen as suppliers of regulations for incumbent businesses who "buy" those regulations with various electoral resources (i.e., votes, campaign contributions, and so forth) is highly congruent with the political, social and economic forces playing out in the real world today (Jarvenpaa et al., 2003). The public choice model maintains that regulation facilities the preservation of some level of "control" over these areas and provides economic incentive by incumbent businesses; however, this view appears to be diametrically opposed to emerging Internet technologies that are intended to promote open structures and processes.

In this regard, Jarvenpaa and his associates point out that the technology that operates the Internet was intended to provide an open environment where proprietary or controlling structures would be discouraged, and this openness has allowed highly decentralized and user-driven developments, such as community-based organizations (e.g., eBay) and peer-to-peer computing (e.g., Napster and Kazaa music trading). "Indeed, entertainment industry-supported regulation to control digital piracy, the Digital Millennium Copyright Act (DMCA), has been fairly unsuccessful," they add, and "The DMCA made it a copyright violation for anyone to circumvent a technology control (anti-piracy device such as encryption) that a firm attached to its software" (Jarvenpaa et al., 2003, p. 72). While these initiatives were originally targeted at digital music and DVDs, continuing innovations in peer-to-peer computing and open-source decryption software have made it increasingly difficult for entertainment copyright holders to enforce their rights under the DMCA today (Jarvenpaa, 2003).

According to Calestous (2005), though, the studies of globalization and its impact on policymakers have typically focused on broad cultural contexts that ignore the other realities facing the 200-or so nations of the world today. This author cites the linkages between globalization and concerns about food safety, specifically on international trade rules regarding food, particularly genetically modified foods. For instance, Calestous points to the introduction of technological innovations that have far outpaced the ability of international regulatory agencies to keep up. In this regard, the author reports that, "Sections of the public have remained concerned that existing regulatory institutions have not changed enough to ensure the safety of genetically modified foods. The introduction of new technologies can destabilize global markets that had reached a temporary state of equilibrium" (Calestous, 2005, p. 265).

Clearly, then, in this dynamic environment, "The technology itself is the most pervasive form of Internet regulation that limits or expands social and economic opportunities [and] organizations that design the technology, not any government entity, often govern the use and ownership of the technology" (Jarvenpaa, 2003, p. 72). These authors cite as examples the patents and copyrights that AOL controls that govern the protocols for Instant Messaging; likewise, Microsoft controls the Windows operating system, thereby affording each company with significant regulatory power concerning their respective access and fees; in fact, they suggest that technologists instead of legislators or politicians are increasingly being placed in charge of providing policies and controlling the environment in which companies compete (Jarvenpaa, 2003).

Impact of Events and Trends on International Institutions.

The foregoing represent some serious issues when it comes to ensuring that adequate regulatory systems are in place for global commerce and its associated industries. For example, the system of international banking that is in place today did not fall out of the sky, but is rather the result of hundreds of years' of economic interaction among the countries of the world; it has been in recent years, though, that events have clearly demonstrated the extent to which the respective financial condition of these individual countries can significantly affect the everyday lives of a nation's citizenry as well as their economy. Today, there are not many countries in the world that have economies that are completely insulated from the rest of the world, and even highly isolated nations such as Cuba and North Korea continue to depend heavily on international assistance for their survival; in fact, Fidel Castro ceded power during the composition of this paper, an event that captured headlines over the fighting wars in the Middle East (pers. obs.). In this regard, then, the failure of one country's economy today can have a profound impact on the economic performance of all others. "Clearly, the days of pursuing economic and financial isolation are over for most nations; and momentum is building to tap multinational financial markets efficiently" (emphasis added) (Khambata, 1996, p. 1).

According to a report by Shankar (2004), the so-called Shadow Financial Regulatory committees of Asia, Europe, Japan, Latin America, and the United States recently supported a reduction and an eventual elimination of the current policies that prevent financial companies from operating on a global basis. In this regard, the author notes that, "The groups listed a number of obstacles to universal financial markets, ranging from a weak World Trade Organization to conflicting accounting standards" (p. 10). The chair of the Latin American Shadow Committee also pointed out that many emerging nations continue to lack the requisite regulatory framework to attract foreign financial services companies (Shankar, 2004). The committee's chair also added that, "It's more of a readiness question than a willingness question" (Shankar, 2004, p. 10). This international institution operates in each of their home countries as a check, or a "shadow," on the policymakers responsible for financial services, and perform various analyses of the activities of bank regulators to develop relevant and timely recommendations for improving laws and rules (Shankar, 2004).

In the past, the various constituents of the Shadow Financial Regulatory committees lauded the European Union for allowing international branches of banks to operate freely within the EU; however, these members have increasingly been reluctant to allow their respective home countries to assume responsibility for both deposit insurance and supervision and indicated a strongly suggested that a single standard should be adopted throughout the union (Shankar, 2004). By contrast, the United States has been highly reluctant to even allow full participation, even by foreign banking branches from banks whose respective countries with adequate insurance and acceptable supervisory systems; the reasons for this reluctance, though, appear to stem from an effort to protect domestic industries from competition which is typically characterized as being efforts to provide consumer protection but instead primarily serve various political interests (Shankar, 2004).

The emphasis on the self-interests involved becomes even clearer in this situation when its potential impact on American banks is analyzed. In this regard, Garver (2003b) points out that the majority of European citizens use large banks, many of which are state-backed. As a result, when international regulatory groups that are controlled by European interests offer a policy proposal for the future, there will not likely be much consideration paid to its potential impact on small U.S. banks. "This has become increasingly clear as community banks have learned about the shape of capital rules proposed by the Basel Committee on Banking Supervision," in Basel I and II, Garver notes (2003b, p. 10A). In this regard, Garver adds that, "Since the late 1990s the committee has been debating changes to the capital rules that govern international banks, and small banks are alarmed at the potential impact of the latest proposal. In a recent letter to the Basel Committee, the president of the Massachusetts Bankers Association, called it 'inherently unfair' and said the threat it poses to small banks could 'destabilize U.S. markets'" (Garver, 2003b, p. 10A).

The proposal in Basel II provided that large banks could use state-of-the-art risk-management techniques to reduce the capital they were required to maintain against loans, an approach that transcends the ability and resources of most small banks (Garver, 2003). According to another report by this author, "The most sophisticated institutions would be allowed to use an advanced internal ratings-based approach to measure their need for regulatory capital. But U.S. regulators are taking a different tack. Rather than making the full menu of options available, they would require only the largest U.S. institutions to adopt the new accord, and these banks would have to use the most-sophisticated option" (Garver, 2003a, p. 4). The results of a Federal Financial Analytics study showed that capital levels could potentially fail to decline as much as U.S. institutions had hoped, because unique elements of the regulatory structure here, including a leverage ratio and prompt corrective action standards, would remain in place. "This would have the effect of "topping off" capital levels at institutions with risk management practices that might otherwise entitle them to reductions. So overall regulatory capital levels would not drop for banks with large low-risk portfolios, such as major home mortgage lenders, even though the specific capital charge for mortgage portfolios would be lower" (Garver, 2003a., p. 4).

A managing partner at Federal Financial Analytics noted that, "Low-risk banks won't benefit from Basel, and high-risk ones might not be penalized -- the reverse of what all the regulators wanted at the outset," and added that that Basel II, at least in its current form, may never take effect in the United States. According to this analyst, "Among other things, the agencies have clashed over whether applying the new rule only to large institutions will put small banks at a competitive disadvantage. Tensions among the regulators have been clear at recent hearings, and details in the text of the proposed rule show how deep these divisions run (emphasis added) (Garver, 2003a, p. 4). The report concludes that feedback is continuing to be solicited from all stakeholders, and implementation of Basel II was not expected before 2007 (Garver, 2003).