Neoliberalism is a theory in international relations that focuses on the role of international institutions in facilitating cooperation between states. It emerged in the 1970s and 1980s as a response to realism, challenging the view that the anarchic structure of the international system prevents cooperation.

Neoliberalism makes several key assumptions:

• The international system is anarchical, with no overarching authority above states
• States are rational, self-interested actors
• Cooperation is possible but difficult under anarchy due to concerns over relative gains, cheating, and enforcement
• International institutions help mitigate these issues by providing information, reducing transaction costs, promoting iterated games, and monitoring agreements

Neoliberalism is concerned with studying how institutions can facilitate bargaining between states, prevent defection from agreements, and foster cooperation even in an anarchic global order. It offers a more optimistic view than realism on the prospects for collaboration, but still recognizes that egoism and cheating pose challenges.

Origins of Neoliberalism

Pluralism literature, which stressed the role of non-state actors in breaking down domestic barriers, is where neoliberalism got its start. This literature called for a more complete view of international affairs.

Neoliberalism, on the other hand, is different because it takes a state-centered view, similar to structural realism. Neoliberalism sees states as rational, unitary actors that try to maximize their own utility. This view is largely based on economic studies that look at rationality and utility-maximization.

For example, Keohane and Nye’s “Power and Interdependence” and other important neoliberal works tried to find a balance between optimism and sticking to the realist idea that people are selfish and self-centered.

Neorealists (Grieco, Krasner) and neoliberals (Keohane) debates in the 1980s and 1990s, is called the neo-neo debates. Neoliberals focused on two major changes in the 20th century that made realism less accurate when it came to explaining global politics: the United States’ hegemonic stability and the growing interdependence between actors.

This change in how people think shows how pluralism, neorealism, and neoliberalism have changed how people think about international relations over time.

Barriers to Cooperation

Neoliberalism recognizes that cooperation does not come easily in an anarchic international system comprised of self-interested states. States may be hesitant to cooperate if they fear others will defect or free-ride off their efforts. As such, neoliberalism examines the barriers that hinder international cooperation:

Anarchy - The decentralized nature of the international system, with no overarching authority, makes it difficult to enforce compliance. States recognize that any agreements lack an external enforcement mechanism. This absence of hierarchy promotes uncertainty and mistrust between states.

Defection - States may hesitate to cooperate if they fear others will fail to uphold their end of an agreement. Without recourse to an external authority, states worry partners may defect from deals that no longer serve their self-interest. This presents an obstacle to mutually beneficial cooperation.

Free-riding - States want to ensure their cooperative efforts will not simply benefit free-riders who do not share costs. In an anarchic system, states cannot be certain joint gains will be equitably shared. The possibility of free-riding disincentivizes cooperation.

Neoliberalism examines these challenges presented by anarchy, defection, and free-riding. It then analyzes how international institutions can be designed to facilitate cooperation despite these barriers.

Role of Institutions

International institutions are crucial for neoliberalism because they help facilitate cooperation between states in an anarchic international system. Neoliberals believe institutions can be rationally designed to mitigate the challenges of cooperation.

Institutions facilitate repeated interactions between states, building trust and allowing them to cooperate over time for mutual benefit. They also provide information to states about each other’s behavior and intentions, reducing uncertainty. Moreover, institutions establish rules and norms for appropriate state actions.

Since cooperation is challenging in an anarchic environment, neoliberals have an interest in developing the rational design of international institutions. Their aim is to create institutional structures and mechanisms that promote bargaining between states, deter defection from agreements, and give institutions some autonomy from state control. Careful institutional design can alleviate barriers to cooperation.

Bargaining

The first broad theme involves the extent to which institutional designs play a role in international negotiations and bargaining. In order to reach a collectively agreed decision, states need a degree of regularity in the rules and procedures for their collective decision-making.

Overall, bargaining is facilitated by regular institutional processes that structure repeated interactions between states. This allows collective decision-making to emerge through compromise and reduced transaction costs.

Defection

The second broad category of institutional design problems of interest to neoliberal scholars involves the issue of defection. Because states fear that their cooperative partners may fail to live up to mutual agreement, states may be discouraged from engaging in cooperative projects in the first place. They may also be concerned with the ability of other states to free-ride or indirectly (and without incurring costs) benefit from their cooperative efforts. These concern lead to an obvious question: how can international institution be designed to alleviate concerns over defection?

Institution can play a role in alleviating two important aspects of defection that is compliance and enforcement. Compliance involves the extent to which states can be induced or encouraged to abide by international agreements to which they are parties. Enforcement involves the extent to which states can be forced into compliance and possibly punished for their failure to do so. Institutional mechanism for monitoring state behavior are particularly important for compliance, because such monitoring makes all states aware of one another’s behavior’s

Autonomy

Neoliberal scholars are also interested in the third, more general area of institutional design: autonomy. Neoliberalism says that international institutions make it easier for people to work together for their own benefit, but it’s not always clear that results are caused by institutions alone. The issue is with the neoliberal idea that international organizations are made so that people can benefit from them. Is it possible for international institutions to be looked at separately from the interests of their member states?

Case Study - WTO

The World Trade Organization (WTO) serves as a forum of free trade organizations and agreements, for states to negotiate free trade agreements and settle trade disputes. It rests on the presumption that it is normatively valuable and – along the stag hunt analogy – rationally beneficial to participate in the global activity of capitalist free trade.

WTO’s institutional design developed out of the collective experience with GATT. Established in 1948, out of Anglo-American hegemonic vision of a new global economic order during the Second World War, it finally crumbled under its inability to coordinate trade liberalization, given the different domestic pressures on states towards protectionism. Rounds of negotiations within the GATT framework led to the establishment of the WTO in 1995.

WTO is a formal inter-governmental organization with a full Secretariat and an extensive institutional structure to cover all aspects of trade. Despite collective will, WTO has faced heavy critiques as a decentralized, undemocratic institution that represents corporate interests with clear North-South divisions. Nonetheless, it demonstrates the importance of institutional design to collective goals in an otherwise anarchic environment.

Conclusion

International co-operation is now an embedded, enduring feature of global politics. States cooperate on issues ranging from trade and economics to security and the environment. This cooperation takes place through formal institutions like the United Nations and World Trade Organization, as well as through ad hoc multilateral agreements and regional organizations.

While cooperation does not always run smoothly, it has become a standard practice for states pursuing their interests in the international system. Conflict and competition still occur, but so too does collaboration. Even rivals cooperate in certain domains.

Neoliberalism seeks to understand how this cooperation is initiated and maintained. Its theories examine the role of institutions, regimes, and norms in facilitating bargaining, mitigating defection, and fostering complex interdependence between actors. Neoliberals recognize that cooperation faces many obstacles in an anarchic environment. But they maintain it is both normatively valuable and rationally beneficial for states to participate in global governance through institutions.

The study of how institutions support cooperation - while imperfect - provides insight into building a more stable international order. Neoliberalism accepts the problems and conflicts inherent to global politics. Yet it ultimately asserts cooperation is achievable if institutional designs evolve to promote state interests. Anarchy did not mean the end of collaboration.