In Controlling Institutions, Randall W. Stone develops an original theory of “informal governance,” which illuminates key aspects of international organizations, institutionalized governance more broadly, and the politics of delegation. Using this analytical framework, he provides a multifaceted, compelling analysis of the origins and operation of the formal rules and informal ways of governing the International Monetary Fund (IMF). In addition, he presents exploratory analyses of the GATT/World Trade Organization and the European Union to illustrate the broader applicability of his model to other international organizations. This important book promises to bring closure to the fruitless categorical debate whether or not formal institutions matter when they operate in the shadow of state power, while opening fruitful avenues for further research on governance in a variety of institutional settings.
Controlling Institutions starts from the premise that the increasingly interdependent world frequently requires cooperation or at least coordinated policies, and that international organizations (IOs) can help states achieve such cooperation at lower cost or more effectively than if they simply used the traditional tools of international diplomacy to cooperate on an ad hoc basis. Stone defines a state's power in an IO as a function of 1) the state's ability and the relative cost of bringing about the desired cooperation without working through the IO and 2) the positive externalities that IO-based engagement with this state creates for other states. He then illustrates the benefits of IOs for states that are, by his definition, powerful or “strong” by noting how the IMF helps the United States achieve its foreign policy objectives: “In an emergency, the IMF can mobilize more resources and act more expeditiously than” US government agencies such as the US Agency for International Development, and it can lend without the delays for U.S. congressional debate, approval, and so on (p. 30). Moreover, the extraordinary influence of the United States in the IMF, that is, its ability to wield power far beyond its formal vote share through power-based “informal governance,” allows the US government to get the IMF to set aside its ordinary procedures—for example, the criteria and procedures for making IMF loans conditional on economic reforms. The US government will use this power, Stone argues, when a pressing geopolitical concern requires having leverage vis-à-vis the loan-receiving country.
To facilitate genuine cooperation, however, international organizations must also serve the interests of less powerful (“weak”) states—at least to the point where they prefer “voluntary” participation over nonparticipation in the organization. Stone rejects the (common though usually implicit) idea that either the strong or the weak states must somehow be fooling themselves into expecting greater influence in an IO than they subsequently achieve in it. Instead, Stone argues, formal and informal rules operate side by side in IOs, allowing states to make intertemporal and inter-issue tradeoffs.
During “ordinary” times, an IO operates as prescribed by its formal rules. As a consequence, the organization usually produces “predictable policies that reflect the distribution of formal voting rights” among the member states, and it may enjoy considerable, real discretion over the tasks delegated to it (p. 13).
During extraordinary times, however, when strong states' fundamental interests are at stake, such powerful states are by definition able to circumvent the constraints of the formal rules to have their way—but only at a cost. The cost of such “informal governance” is a function of the institutional design of the international organization. Substantial delegation to the IO staff, for instance, allows a strong state to “capture” the IO; low transparency facilitates issue linkage or side payments. Such informal governance in IOs provides a powerful state with an alternative to very costly “overt coercion,” allowing it to get other states to go along when it has very intense preferences.
Informal governance, however, only works (or remains distinctive from, and less costly than, coercion) if powerful states generally allow the formal rules to operate as written: “If weaker states were not convinced that the privileges of the powerful would be invoked sparingly, the entire architecture of international cooperation would crumble” (p. 21). Moreover, powerful states must compensate weak states “for the losses they incur when powerful states exert informal control” (p. 18), which they can credibly do only by granting weak states disproportionate influence under the formal rules that govern decision making during normal times. In sum, we should expect the design of IOs to reflect the explicit or implicit bargain between strong and weak states at the time of the inception—based on their issue-specific relative power and their expectations at the time regarding the frequency with which the strong state(s) will resort to dominating the IO through informal governance.
Stone initially develops this theoretical argument about the institutional design and operation (and dysfunction) of IO-based governance verbally in Chapter 2. He then restates it as a mathematical model (an extensive-form game) in Chapter 3. This allows him to derive the subgame perfect equilibria and specific comparative statics that yield the hypotheses examined in the empirical chapters, making the book an excellent example of the Empirical Implications of Theoretical Models (EITM) tradition in international relations. Chapter 4 then provides an initial analysis of the institutional structure, the formal rules, and informal governance in the IMF. Chapters 7–9 extend this analysis, focused on access to IMF loans during normal and crisis times (Chap. 7), selective conditionality of such IMF support (Chap. 8) and selective monitoring and enforcement (Chap. 9). These chapters about the IMF—based on original data from the IMF archives and interviews with IMF staff, as well as public information—are the empirical core of the book and present a wealth of material that goes well beyond the author's previous publications about the IMF.
Chapters 5 and 6, which explore the argument in the context of the institutional design and operation of the GATT/WTO and the European Union, serve as plausibility probes for the applicability of the theoretical model beyond the IMF. The reader should not expect a comprehensive treatment of these complex international organizations in these short chapters. The analysis of the GATT/WTO focuses exclusively on the dispute-settlement mechanism; the analysis of the EU provides a highly stylized treatment of the legislative process, the increasing prominence of the European Court of Justice (ECJ), and of enlargement, combined with something of a case study of the Stability and Growth Pact. On each of these aspects of European integration, substantial literatures exist, including Walter Mattli and Anne-Marie Slaughter's work on the ECJ, Berthold Rittberger's work on the increasing role of the European Parliament in the EU legislative process, and Frank Schimmelfennig's work on EU enlargement. These scholars (and many others) have argued for going beyond the strong rational-choice institutionalism that Stone espouses in order to understand institutional change or the interaction of rules and norms in EU decision making. It would be a misreading of this book to focus on its implicit position in those debates or literatures. Stone consciously makes no attempt to engage with them, but instead focuses on showing that the theoretical model put forth in this book can capture and maybe help us understand important aspects of these international institutions.
Stone himself briefly discusses several fruitful extensions of his model, such as examining more fully the effect of an increase in the number of major countries in international organizations—a particularly pertinent issue for the governance of the world economy in light of the ever-increasing importance of Brazil, China, India, and a few other large, fast-developing countries. Another worthwhile extension would be to relax the assumption that all states have an invariant and perfect capacity to articulate their national interest on any issue, and that a philosopher king ranks those issues by importance to the state (thus allowing the rational prioritization that drives the distinction between ordinary and extraordinary time). For most contemporary states, however, such prioritization—and, hence, the articulation of a national interest—is surely a function of domestic politics. Integrating Stone's theoretical model with theories of the interaction or complementarity between domestic and international institutions should therefore be a promising avenue for future work.
