A symbol of the current era, an embodiment of the international zeitgeist, might arguably be the World Trade Organization (WTO). Formed in 1994 as a product of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), the WTO represents not only one of the most successful international institutions to date, but also signifies the modus operandi under which people, states, and organizations of all stripes seem to operate: put trade and business first, and the rest will take care of itself. This principle has worked wonders for many, particularly since the end of the Cold War, bringing millions of people out of poverty and revolutionizing the way in which states relate to each other. Over the past decade or so, however, the enthusiasm with which policymakers and academics sounded the drumbeat of international trade has begun to subside. Many people continue to feel marginalized as income has become more unequally distributed than in previous decades, as multi-national corporations and national leaders bind together in historic agreements to boost economic output, and as the detrimental effects of such output on the natural environment becomes more acutely obvious. Thus, lines are now being drawn by nations who feel most disadvantaged by or least powerful within the international system to demand more equitable treatment. Such a phenomenon is painfully apparent in the failure of the most recent Doha Round of WTO talks. At an impasse over discrepancies between the international haves and have-nots, the WTO now symbolizes a fanaticism for institutions gone flat. The market economic trade that began to flourish in the 1990s has not and is not likely to subside, but the confidence that many had placed in international institutions such as the WTO has. One feels inclined to ask: are the institutions through which we put trade first becoming obsolete and can the rest really take care of itself?

Theorists across a wide spectrum have spent considerable time debating how to define international institutions, what relationship individual states have to them, and whether institutions matter much at all to the international system. The theoretical base on which so much of international political analysis has rested, or to which it has stood in opposition, is the school of realism. As articulated by thinkers such as John Mearshimer, realist thought emphasizes states as the primary actors in an international system that is largely anarchic. The world is accordingly defined by the rational self-interest of states as they pursue maximum benefit in balances of international power. Institutions, Mearshimer argues, are merely reflections of states’ interests and are ultimately devoid of legitimately independent stature as external actors. Constructivist and institutionalist thinkers would argue in direct opposition to this claim. Alexander Wendt, a notable constructivist scholar, contends that institutions establish and distribute global norms, which in effect constrain state choices and make institutions more robust independent exogenous actors than realists claim.

A convincing approach that in a way synthesizes some aspects of realist and constructivist schools is that of rational design, as explained by Barbara Koremenos, Charles Lipson, and Duncan Snidal. These authors explain that institutions do operate on the basis of states’ preferences and goals, but give legitimacy to them as significant international actors based on the variety of structures that institutions have. International institutions vary greatly and as such are designed based on the myriad rational goals that states have. Rational design theory thus accepts that institutions both establish global norms and exist to further the goals of individual states. Although Koremenos, Lipson, and Snidal’s hypothesis suffers from a slightly cumbersome multiplicity of variables, their thesis is extremely helpful in viewing institutions as rational mechanisms designed for solving specific international problems. Both GATT and the WTO, under this paradigm, would be quite easily explained as the evolving collective product of many states’ goals. As the membership of GATT expanded, the institution’s design had to be adjusted, as evident in the measures implemented in the formation of the WTO during the Uruguay round. For example, agricultural protection, intellectual property and anti-dumping rules all had to be revised in order to meet the goals of member states. With such rules established and with the existence of dispute mechanisms in place, the WTO, then, was not entirely a simple reflection of states power-balancing motivations in an anarchical system as realists would claim. But neither was it entirely an independently existing outside actor imposing a set of global norms and constraints on state behavior. The WTO was a body both representing states’ individual goals and in turn spreading global norms on trade.

With the recent failure of the Doha round of WTO talks, though, we may be forced to reconsider whether the goals of member states have become so irreconcilable that the design of the institution itself has run its course. Is the WTO too severely infused with hard-law constraints or not enough? If the WTO, once one of the most highly functional legalized international institutions, has floundered, what does this mean to institutions in general? Mearshimer would argue that it directly speaks to the futility in depending on institutions as key components of the global order. Conversely, an exponent of institutions such as Robert Keohane would see the breakdown of the WTO as evidence that stronger, more binding democratic mechanisms need to be implemented in the organization for it to be effective, and for global stability at large to be maintained. While the international system would benefit from more stable and robust institutions, in order to impose such mechanisms states would be forced to abandon self-interested goals, which would be no easy task. So the fate of international institutions, like the WTO and like the net effect of global trade, remains somewhat indeterminate. As a consequence, if we are to make progress in this contentious area of global debate and if we are to keep the design of the WTO relevant, one side will have to bend and concede ground. In my view, the impetus for change rests on the developed nations of the world. It is they that have crafted the age of global trade and it is they that are most well-equipped to bear the burden of adjustment in a system in disrepair.

In recent years, China has proven persistently to be the exception to traditional theory. As Minxin Pei, a prominent China scholar, has emphasized, there exists a large amount of uncertainty present in conventional analysis of China’s reform, despite the proliferation of theory explaining non-democratic market reforms and despite the certainty with which the world seems to have accepted a dominant China.[1] Developmental state theorists demonstrated that democracy was unnecessary for aggressive economic development; South Korea, Taiwan, Singapore, and others all initiated sweeping, unprecedented economic growth without legitimate democratic institutions. Granted, the developmental state model so often associated with these countries is not one that exhibits features entirely harmonious with the neoclassical market-based paradigm, but it does thrive on international markets and private economic actors, rather than state control over prices, supply, and distribution mechanisms as in a communist system. However, nearly all of the states mentioned eventually became more committed to not just economic liberalization and adoption of market principles, but also to political systems of open, democratic participation. Thus, academics and policymakers alike have been baffled as China continues to reform from a command economic model to a predominantly market-based model, maintain unprecedented growth, and simultaneously avoid wholesale democratization. There is a common feeling that sooner or later China will crack and everyone is taking bets as to when.

Predictive indicators that China’s economic prowess may not outlast the need for democratization are bountiful, ranging from empirical examples taken from China’s neighbors in East Asia to theoretical discussions regarding the economic reform of post-communist states. One of the foremost such discussions is Joel Hellman’s, which dispels the once commonly accepted principles of J-curves, as they relate to transitions to capitalism. The J-curve concept regarding the transition from a command system to a market system adheres to an intuitively sensible logic. According to this model, it was traditionally argued that the primary opponents to reform would be the short-term losers, and thus states should work to protect against potential backlash of the losers until reforms gained enough popular support. Hellman turns this argument on its head, demonstrating convincingly that in post-communist countries, genuine economic reform is often stalled by the short-term winners of reform policies, rather than the losers. Critical to understanding the relationship between political and economic reform, then, Hellman contends that politically inclusive systems are necessary to prevent short-term winners from stalling continued progress. Democracy, in sum, ensures that economic reform will endure and benefit a larger number of actors.

Considering Hellman’s argument and the evidence on post-communist states that he provides, it is difficult to reconcile China’s success in implementing market reforms with its persistent lack of genuinely participatory political processes. If post-communist states with more open political systems have enjoyed robust continued reform and those without have been mired in more stagnant partial reform, as Hellman asserts, then how is China able to remain committed to economic reform? There are at least several clues. For one, China has been much more successful at co-opting both the potential short-term losers and short-term winners in its reform processes. As Yan Sun has pointed out, “China’s gradualism has allowed officials to retain some of their old powers and to acquire new powers over the economy.”[2] Though Sun’s observation is more specifically in reference to the nature of corruption in China’s reform process and though there is disagreement on just how gradualist China’s reform has been, the author’s insight helps explain China as a potential exception to Hellman’s rule. The Chinese Communist Party (CCP) has been quite deft at ensuring that those who benefited from the previous economic system gain a stake in the new one as well. Gennadi Kazakevitch and Russell Smyth also illustrate how through measures such as rapid agricultural liberalization, market reforms were implemented in China at times with lightning speed and created new opportunities for many different actors to benefit from the new system. Consequently, China has been able to avoid the political instability that would be caused by democratization while also avoiding getting stuck in Hellman’s partial reform conundrum.

Furthermore, it is worth considering that Hellman makes his assertion about the necessity of democracy to genuine market reform without acknowledging any states that have pursued market liberalization without political liberalization. China is proof that such states can exist, and moreover, that their market reforms can be quite successful. Nonetheless, we should not dismiss Hellman’s conclusions entirely due to China’s rather unique circumstance. Chinese leaders continue to tread largely uncharted waters. The post-communist countries, those of Hellman’s study, by and large committed to some form of democratic reform either prior to or during economic reform. Hellman’s conclusions thus offer a compelling explanation of simultaneous reform toward both a democratic political and market economic system. His model demonstrates that although the political costs may be high, once democratic reforms are initiated it is most beneficial to democratize aggressively, if the gains from market reforms are also to be maximized. And perhaps that is precisely why leaders of the CCP have suppressed democratization; they fear losing both the Party’s grip on power and the country’s ability to maintain economic growth. Yang Dali has shown that China now faces increasing societal pressures brought on by the great economic growth it has achieved. From environmental degradation to growing income inequality, Chinese leaders have a gathering storm of problems to address. Although it seems unlikely China will be able to stave off democratization indefinitely as these pressures build, for now the country seems miraculously able to remain the exception to an otherwise reliable rule.

---

[1] Minxin Pei, “China: Can Economic Growth Continue Without Political Reform?” Strategic Asia 2006-07: Trade, Interdependence, and Security (Seattle: The National Bureau of Asian Research, 2006), 303.

[2] Yan Sun, “Reform, State, and Corruption: Is Corruption Less Destructive in China than in Russia?” Comparative Politics (Vol. 32 No. 1 Oct. 1999), 4.