By Vinod K. Aggarwal and Cédric Dupont
Oxford University Press
It is now commonplace to hear about the phenomenon of globalization. Much of the current analytical debate on globalization has its roots in the international political economy literature on interdependence of the early 1970s (Cooper 1972; Keohane and Nye 1977). At that time, political scientists began to identify the characteristics of the changing global economy, including the increased flows of goods and money across national boundaries as well as the rise of non-state actors as a challenge to traditional conceptions of international politics.
Although increasing interdependence among states was a relatively new phenomenon when considered against the baseline of the 1950s, high levels of interdependence had existed in earlier historical periods, including the period prior to the First World War (Bordo, Eichengreen, and Irwin 1999; McGrew, Chapter 10 in this volume). This interdependence, however, was not matched by high levels of institutionalization, in stark contrast to the post-Second World War Bretton Woods organizations of the International Monetary Fund (IMF), the World Bank, and the General Agreement on Tariffs and Trade (GATT), and now its successor, the World Trade Organization (WTO). The problems that institutions such as the IMF faced with the breakdown of the Bretton Woods gold-dollar-based standard in 1971 (Reinhart and Trebesch 2016), the movement towards trade protectionism that appeared to undermine the GATT, and instability in the oil market with the 1973–4 oil crisis also drove the debate on interdependence in the early 1970s.
A key issue in considering the implications of interdependence revolves around the question of how to achieve collaboration and coordination among states. In particular, scholars have focused on how states respond to perceived problems in the global economy that they cannot deal with solely on their own. An important starting point is to distinguish interdependence from interconnectedness based on the costs of interaction. ‘Where interactions do not have significant costly effects, there is simply interconnectedness’ (Keohane and Nye 1977: 9). With costly effects (or high benefits), however, we can consider countries as mutually dependent on each other, or interdependent. In attempting to cope with interdependence, then, countries will be faced with making decisions that will affect their direct well-being, and thus the sharing of costs and benefits can be potentially controversial.
This chapter considers the problem of collaboration by first characterizing situations that might require states to work with each other to achieve a desired outcome. It then turns to a focus on basic game theory as an analytical tool to tackle the nature of collaboration and coordination efforts. Finally, we consider how institutions might play a role in enhancing the prospects for cooperative behaviour.