Latin American Social Institution: A Case for Regional Integration

Introduction

The financial and economic structure of the world has drastically transformed, and leading this transformation are international institutions and organizations. The growth and development of international institutions and organizations has been directly proportional to the growth and development of the new globalized world economy. Presently, all economic activities are being governed and managed by these international institutions and organizations through international laws developed by complicated and complex processes. Lisa L. Martin (2003) elaborates on this phenomenon: "Institutionalization is a hallmark of the new global economy. International institutions, which are integrated structures of norms, and formal international organizations (IOs) both led to the formation of the global economy and have resulted from its development. International economic interactions are largely institutionalized. That is, they occur within a framework of norms, rules, and organizations. Many of these rules have been made explicit and formally agreed by states; others remain more informal. It is difficult to understand the functioning of the global economy without an understanding of its institutionalization" (Lisa L. Martin, 2003).

Furthermore, the amalgamation of the study of international politics and economy is a relatively new subject, and therefore an extensive amount of research is required to comprehensively understand the characteristics underlying the phenomenon of international institutions and organizations. Jeff Frieden and Lisa L. Martin (2000) write, "International Political Economy (IPE) is a relatively new sub-discipline within Political Science. The first textbook in the area was published in 1977 and regularly scheduled undergraduate and graduate courses were not routinely offered until the middle 1980s. Even today, the boundaries of IPE are not always clear" (Jeff Frieden and Lisa L. Martin, 2000).

The idea of creating an international social institution in Latin America resembling the European Union structure requires careful examination. As the facts above make clear, research and study on this subject is neither very extensive nor very comprehensive. Before assessing the justification and the possible working structure of such an institution, it is imperative to briefly review the relevant theories so that we may clearly evaluate not only the workings of a Latin American social institution but also the fundamental reasons and motivations underlying such a development.

Review of Related Literature

The contractual theory presented by Krasner (1983), Keohane (1984), and Goldstein (1996) proposes that countries confronting the dilemma of individual irrational behavior — such as that of criminals, robbers, thieves, and murderers — leave all segments of society unhappy and discontent with the workings of government. The identical situation in economics is referred to as market failure, because markets that function correctly do not give rise to second-class results (Krasner, 1983; Keohane, 1984; Goldstein, 1996). In international relations, Martin (1992), Snidal (1985), and Stein (1983) assert that this theory is referred to as cooperation and collaboration amongst countries so that each may attain its individual objectives. These theorists also believe that the underlying motivation behind the creation of an international institution is for individual countries to reach a point where they can no longer acquire shared advantages from cooperating and collaborating with other countries. This stage is referred to as the "Pareto frontier." At the Pareto frontier, one country profits at the expense of another, meaning that collective gains are no longer available and each country must protect its own individual interests (Martin, 1992; Snidal, 1985; Stein, 1983).

Keohane (1984) reveals how international institutions can assist individual states in solving their collective-action problems. He believes that markets cannot fail unless property rights are vaguely defined and/or contract costs are small. As he writes, "the Coase theorem could be interpreted . . . as predicting that problems of collective action could easily be overcome in international politics through bargaining and mutual adjustment" (Keohane 1984, p. 86). However, these conditions are superficial rather than realistic. While one cannot disagree entirely with the theory presented by Keohane (1984), it is worth noting that in international politics neither the contract and transaction costs are low nor the property rights are clearly defined. Therefore, individual governments are always in a state of mistrust, fearing that the other party may not live up to its end of an agreement, that they may not be able to satisfactorily observe and learn from others' actions and behaviors, or that parties may act opportunistically given that penalty mechanisms are insufficient (Keohane, 1984). Lisa L. Martin (2003) highlights the same fundamental problem: "In order for states to cooperate, they must overcome a range of collective-action problems. No external enforcement exists in the international economy, so any agreements must be self-enforcing. This means that states must find ways to avoid temptations to cheat, such as reneging on agreements to encourage trade by erecting protectionist barriers" (Lisa L. Martin, 2003).

This is precisely where international institutions can solve the mutual-action problems confronted by individual states. Keohane (1986) presents a theory in which international institutions serve as a catalyst in the process of collective action between two or more independent countries. International institutions carry out this role by sharing information about the preferences, motives, attitudes, principles, and informal facts and data of other countries. Consequently, the most important effect of international institutions in contractual theory is an efficiency effect: they permit independent countries to arrive at agreements that are at the point of the "Pareto frontier" (Keohane, 1986).

Over the years, contractual theory has been developed and redrafted by many scholars and theorists. Krasner (1991) and Fearon (1998) assert that the modes, scope, and level of cooperation and coordination depend solely on the interests of each nation, and that all nations should have the liberty to agree or disagree with proposals put forward by other countries (Krasner, 1991; Fearon, 1998). However, Stein (1983) has argued that it will be easier for countries to coordinate than to collaborate in solving their problems (Stein, 1983). On the other hand, Fearon (1998) revealed that negotiating and bargaining can be as troublesome as coordinating for states that are cooperating to solve their problems (Fearon, 1998). Krasner (1991) proposes that once the modalities of agreements are put forward, states, through the exercise of power, can decide whether to be a party to that agreement or not (Krasner, 1991).

The concepts discussed above have been, by and large, adopted by international institutions to coordinate and collaborate in order to solve common problems. With this clear picture of the theories pertaining to international institutions and the motives of independent states to join them, we turn to the crux of the paper: the idea of creating an international institution in Latin America, the rationale behind it, the reasons underlying its creation, and the working parameters of such a Latin American social institution.

The Rationale for Creating a Latin American Social Institution

Many scholars believe that international institutions serve the interests of not only developed countries but also underdeveloped countries. They allow equal participation of all members, promote justice and harmony among members, and encourage societal transformation on a constant basis. However, Isabelle Grunberg, Inge Kaul, and Marc A. Stern (1999) assert that international institutions and organizations such as the UN, IMF, and the World Bank do not cater to the needs of developing countries and exist simply to protect the interests of the developed world. They identify three major disparities: (1) "A jurisdictional gap — the discrepancy between the global boundaries of today's major policy concerns and the essentially national boundaries of policy-making"; (2) "A participation gap — which results from the fact that we live in a multi-actor world but international cooperation is still primarily intergovernmental"; and (3) "An incentive gap — because moral persuasion is not enough for countries to correct their international spillovers or to cooperate for the global public good" (Grunberg, Kaul, and Stern, 1999).

The continued existence and development of these disparities have undermined the credibility of international institutions, as they have failed to assist developing nations in implementing their national goals and interests. Therefore, a new approach to inter-state and inter-regional cooperation is necessary — one that does not treat the sphere of public ends as stopping at national borders, but rather distinguishes and crafts an effective regional political and socioeconomic system that helps governments solve their problems while also producing trickle-down effects for the broader population. As Grunberg, Kaul, and Stern (1999) assert, what is needed is "a clear jurisdictional loop, reaching from the national to the international (regional and global) level and back to the national; a participation loop, bringing into the process all actors — governments, civil society and business; all population groups, including all generations; and all groups of countries; an incentive loop to ensure that cooperation yields fair and clear results for all" (Grunberg, Kaul, and Stern, 1999).

Conclusion

The success of a social institution in Latin America depends entirely on producing a system that protects participating states from falling into these two dilemmas. This goal can be achieved by eliminating the jurisdictional, participation, and incentive disparities among Latin American countries. The jurisdictional disparity can be resolved by introducing a set of laws, rules, and regulations that run from the national to the regional, from the regional to the international, and back from the international to the regional and then to the national — by means of numerous transitional territorial and national levels. Latin American countries can achieve this by creating state externality frameworks, internalizing cross-border conflicts, realigning national policies to regional concerns, connecting state and regional policy programs, escalating regional collaboration, and returning the advantages of regional cooperation to the state level. The participation gap can be closed by adjusting state policies to align with regional policies while simultaneously crafting horizontal rather than vertical networking. The incentive gap can be closed by making steady progress on the first two: closing the jurisdictional and participation disparities. As Grunberg, Kaul, and Stern (1999) write, "Incentive compatibility means that international cooperation is seen by all concerned parties to be a worthwhile outcome, leading to clear national net benefits. It is important to emphasize 'net' because rational actors will consider both the gross benefits from cooperation as well as the costs, including the linkage costs or transactions costs. More than financial, the costs can include a loss of independence" (Grunberg, Kaul, and Stern, 1999).

It is important to understand that cooperation is not an end in itself, but rather the means to an end. It is often observed that international collective actors have identical goals but fail miserably when it comes to actual cooperation. This is because they do not pay sufficient attention to the three variables discussed above and quite often completely overlook these fundamentals. Therefore, if Latin American countries are seriously considering creating a social institution resembling the European Union structure, it is imperative that they develop a system flexible and compatible enough to integrate the three fundamentals of closing the jurisdictional, participation, and incentive gaps.