Leonardo Baccini and Johannes Urpelainen, Cutting the Gordian Knot of Economic Reform: When and How International Institutions Help, Oxford University Press, 2015; hbk £59.00.
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On the back cover of this monograph, Philip Keefer, of the World Bank's Development Research Group, comments that its authors 'marshal an impressive array of evidence to support a novel and surprising theory of the dynamics of economic reform. Preferential trading agreements are not merely steps towards incremental trade liberalization. Instead, PTAs are important levers of domestic reform, allowing leaders to do two things: make credible commitments that they otherwise could not and buy support from interests who would otherwise be implacably opposed' (emphasis mine). What is credible commitment, then, and why is it important? Simply, it involves adopting some device to signal that you will stick to something, mainly by making it costly or impossible to go back on it. The most common analogy, summarised in the phrase 'tying yourself to the mast', concerns Ulysses, aware that he could not resist the song of the Sirens (cast as early populists offering irresistible, instant and easy gratification) luring him onto the rocks, having his crew bind him so that he could not steer the ship himself. The imagery is powerful, and of course far from neutral or innocent. A common form the strategy takes is the voluntary surrender of control or sovereignty over a particular policy - under an international treaty, or to a supranational organization; and a good example of it is the euro, introduced to prevent national governments from devaluing the currency, as they no longer controlled it - the EU being a leading exponent of such devices. Lesser examples include such policies as announcing timetables in advance for changes in tax or welfare regimes, or targets for cuts, interest rates, spending caps and so on.
So the argument of Cutting the Gordian Knot (another classical reference, to Alexander the Great this time, and a metaphor for a swift solution to an intractable problem) is that 'international institutions' can help leaders who wish to implement liberalizing reforms to overcome domestic opposition and achieve their goals. By 'international institutions' the authors mean not only organizations such as the IMF and the World Bank, but also, and primarily, formal arrangements that dictate or structure behaviour. Their primary focus is on preferential trading agreements between the European Union or the US and individual states in the 'South'. Such international institutions, they argue, 'provide leaders with new means to enhance the credibility of, and to create political support for, economic reform' (2). Legally binding commitments regarding domestic reform of the kind made in North-South preferential trading agreements are the price to be paid up front for better market access, and a price worth paying for some who might otherwise be reluctant to accept them; and binding commitment itself makes it more likely that such reforms will be carried out. As for their content, although PTAs are nominally trade agreements, 'both EU and US PTAs contain a range of provisions that prescribe deep economic reforms across the board. They constrain public subsidies to domestic companies, they expand the coverage of patent protection, they mandate dispute resolution between foreign investors and the state upon a dispute between the two, and they pry open the financial sector for European and American banks' (4). Such a PTA is not strictly a cause of reform, they say, but it enables reform 'by leaders who want it but cannot implement it by purely domestic means'. This suggests that 'we should see leaders of developing countries pursue PTA negotiations with the European Union and/or the United States when these leaders believe that their political economic fortunes would be improved by economic reforms but they face political difficulties in their implementation'; that 'we would expect the formation of a PTA to be associated with major changes in the economic policies of developing countries that form these PTAs', and that 'the PTAs should contain provisions that specifically prescribe a wide variety of deep economic reforms' (5). And in fact Baccini and Urpelainen go further, arguing not only that PTAs 'are not all about trade, and often their most important effects are only indirectly related to trade' (7), but also that they have been 'designed to maximise their effect on economic reform' (9).
This is a strong claim. What is more, it is true, and in demonstrating it, they challenge more narrowly focused mainstream theories of trade, and identify a leading feature of the contemporary governance of the global political economy. But of course, if these PTAs were designed to bring about economic reform, it can hardly be a novel discovery - somebody at least must have known about it all along, and will not be at all surprised. And, curiously enough, Keefer is among those who do - he knows it perfectly well, and is only affecting to find the argument novel or surprising. He is a skilled practitioner of the dark arts of 'credible commitment' that underpin them, with a string of influential articles, including a couple of World Bank papers with their origins in the first years of the current century (eventually published as Keefer 2007, 2008, the first of them cited here), and around 25,000 citations to his credit. So something is amiss.
In fact, if you go back nearly forty years, you find the OECD, supposedly a 'rich countries' club', unreservedly welcoming competitive exports from the NICs (Newly Industrialising Countries) on the specific grounds that they would be a 'spur to increased productivity' in the advanced industrial countries (OECD, 1979: 5). Keen as always to see capitalism develop on a global scale, it insisted that the advanced economies should not resort to protectionism to keep out competitive imports. Instead, workers who formerly produced goods that were now imported should be ‘employed to produce something else’, while ‘labour-saving investment and rationalisation to meet competition from low labour-cost countries’ would bring about further productivity gains. And it recognised the political challenge posed by what is known in the business as 'time inconsistency' (roughly, things don't happen in the order you would like): some jobs would be lost, with women and the unskilled most affected, some wages would fall, and the intensity of work would be speeded up. In other words, ‘serious frictional adjustment problems’ were to be expected (ibid). Short-term pain would therefore have to be managed in order to secure long-term gain: while the long run prospects were positive, ‘over the shorter term ... there [was] no guarantee that the necessary adjustments [would] come about smoothly or painlessly’ (ibid: 14). So the issue that Baccini and Urpelainen present as 'one of the great puzzles in the field of political economy' - 'the ability of national leaders to implement liberalizing policies', given the immense difficulty of reform (2) - was identified as a problem in international policy-making circles four decades ago. In response, means were sought to help reform-minded governments to see the 'right' policies through, mostly in liberal democracies in which 'populists' (a catch-all term for any opponent of the politics of global competitiveness) sought to resist them. This gave rise in the 1990s to what the World Bank calls the 'political economy of reform' - essentially, the science, or art, of getting recalcitrant publics - whether businesses or workers - to accept the pro-competition, world market-building reforms that the Bank knows we need and wants us to want. So, reviewing the political economy of European Community regionalism in 1998, André Sapir noted that regional integration had been 'primarily centred in or on Europe,' and that the 'acceleration in the number of agreements notified since 1990 is almost entirely due to changes in the countries of Central and Eastern Europe [CEECs], which account for three-quarters of such RTAs [Regional Trade Agreements], most of them concluded with the EC or with EFTA members' (Sapir, 1998: 718). Exploring the logic of recent agreements, Sapir highlighted 'domino' effects and 'time inconsistency'. When the EC adopted the Single Market programme in the 1980s, it had the domino effect of attracting a wave of requests for membership from European non-members worried about losing market shares, and the subsequent collapse of the Soviet trading system led to a wave of requests for trading agreements from the newly independent countries of Central and Eastern Europe and close Mediterranean neighbours. He then went on to say:
'There is a second factor underlying the desire of the CEECs to participate in RTAs with the EC. As noted, inter alia, by Fernandez (1997), Europe Agreements offer a credible commitment device for implementing otherwise time-inconsistent economic reforms (concerning trade and domestic policy) and political reforms (aimed at devising stable institutions guaranteeing democracy). In the aftermath of their political transformation in 1989, the CEECs implemented major trade liberalisation programmes. The experience of other reforming countries suggested, however, that trade liberalisation was going to be difficult to sustain over a long period, unless governments succeeded in establishing credible commitment mechanisms' (ibid: 725-6).
A footnote to this passage (ft. 13, p. 725) notes that '(t)he idea of a RTA between a richer and a poorer trading partner with the explicit (but not necessarily sole) purpose of helping to implement economic and political reforms in the poorer partner probably goes back to the accession of Greece to the EC in 1981. The accession of Portugal and Spain in 1986 also fits the model. Similarly, the drive of Mexico in favour of NAFTA was partly related to its desire to lock in economic reforms'; and Sapir adds that 'Fernandez (1997) rightly insists that the scope of the Europe Agreements extends far beyond free trade. The Agreements contain major provisions imposing the approximation of EC law, thereby effectively binding the domestic economic policies of the CEECs in areas such as competition and investment policy' (ibid: 726). Raquel Fernandez, whose cited paper was prepared under the auspices of the World Bank's International Trade Division's programme in international trade and investment, also discussed the 'several possible benefits that RTAs might confer to their partners, including credibility, signaling, bargaining power, insurance, and coordination' (ibid: 1).
The EC/EU, the OECD, and the World Bank in particular have been 'helping' ever since by devising strategies and techniques aimed at securing the implementation, embedding and acceptance of policies intended to extend the world market and disseminate an all-encompassing politics of global competitiveness; would-be reformers in the developing world have been quick learners, following the strategy of identifying winners and losers, going for 'quick wins' to build supportive coalitions and keep opponents of reform at bay, and adopting a variety of devices, including international agreements, to 'lock in' economic reforms by removing them from domestic contestation (Gill, 1998: 34-5; Cammack, 1999a: 14, 1999b: 96-7; Nunn and Price, 2004). This has remained a constant feature of the political economy of reform, and as it happens the issue of credible commitment is central to the World Bank's World Development Report 2017: Governance and the Law, which highlights trade agreements among 'transnational rules that provide incentives for a credible commitment to domestic reform', cites the fact that prospective members of the EU 'have to change their domestic rules to abide by the 80,000 pages of regulations in the acquis communautaire', notes that 'the benefits of accession were used by elites to overcome domestic resistance to the required reforms', and ascribes the same logic to China's entry to the WTO (World Bank, 2017: 262-3). So there is nothing here that is novel or surprising. And of course, this cannot come as news to anyone half familiar with the classical Marxist critique of political economy: Marx and Engels saw foreign trade as confronting higher cost/lower productivity domestic producers with a choice between going out of business, forcing wages down, or investing to compete, and made this insight central to their analysis of competition and the rise of the world market.
What has gone wrong here then? In part the problem is a simple lack of familiarity with literature that bears directly on the topic. But this is compounded by the adherence of the authors to the methodology of 'positive political science', with its search for universal laws in abstraction from specific historical and material circumstances, or socio-political conjunctures. They have a set of 69 PTAs in force or under negotiation, from a useful database put together by Baccini and two other colleagues (Dür et al, 2014). Of these, 30 are with the EU, 19 with the US, and 10 each with China and Japan. Chinese PTAs, which understandably do not include binding commitments to liberalisation, are not examined in detail; nor in fact are Japan's, on the shaky grounds that while they do often include such binding commitments, they are practically all signed with regional partners (Chile and Mexico being exceptions). Preceding the introduction of the database, Chapter Two offers 'a general theory of when and how leaders can use international institutions to promote economic reform', and reviews the development of the politics of the political economy of reform over the last thirty years: here Baccini and Urpelainen situate themselves in the lineage of the political economy of reform that goes back to the 1980s, citing contributors such as Joan Nelson, Stephan Haggard, Robert Kaufman, Robert Pastor and Carol Wise. Chapter Three identifies new leaders in newly established democracies as the most likely to want sign a PTA with the EU or the US as a means to maximising their prospects of carrying through liberalising economic reforms at home; Chapter Four examines the design of the set of PTAs negotiated from 1990 onwards, and Chapter Five explores the process by which they came into being. Chapter Six looks at the relationship between PTAs and economic reform; Chapters Seven and Eight provide case studies of reform in pairs of new and established democracies respectively (Croatia and South Africa, and Chile and Colombia); and the conclusion (Chapter Nine) reflects on the significance of the findings.
Baccini and Urpelainen report that the EU was the first to develop PTAs in numbers from 1990 onwards (twenty by 1997, compared with only two - NAFTA and Vietnam - for the US), and has the most PTA partners. Binding commitments to liberalisation are almost entirely concentrated in the period since 1990. The analysis focuses on intellectual property rights, liberalisation in services, foreign direct investment, competition policy and government procurement as examples of areas of economic reform, a set that gives a rounded picture of world market- and competitiveness-promoting reforms. The US is most insistent on IPR provisions, averaging 12 per PTA, compared with 5.5 for the EU (and 4.5 for Japan). On the liberalisation of services, all US PTAs include a chapter; so do the majority of EU PTAs, but only after the Treaty of Lisbon shifted competence in this area and over foreign investment to the Commission. On investment, EU PTAs generally include reference to investment liberalisation and protection as a general aim, while all US PTAs but one contain a substantive chapter. On competition policy, the EU leads, including substantive chapters in a clear majority of cases, while the US includes such a chapter in just under half. On government procurement, the EU includes a chapter in just under half, the US in practically all. This is all fine, as far as it goes. The authors give a sense, albeit incomplete, of the intellectual and practical effort invested by internationally oriented policy-makers in international organisations, the EU, and the US, and their academic acolytes, in devising techniques to draw developing countries into the world market in ways that embed competitiveness both nationally and across the system as a whole. They provide clear evidence that 'recent EU and US PTAs indeed contain a large number of provisions that demand intrusive economic reforms ... with stringent conditions imposed on the implementation of a wide variety of economic policies' (83-4), and to this extent they are informative about the broader framework within which PTAs are formed, and revealing on the logic of North-South trade agreements, and the intent behind them. Anyone who still clings to the illusion that international organisations and institutions are 'technical' and 'neutral' rather than strategic and political should think again. The practices explored here have been hugely successful in changing the world to enhance the power of capital.
But the abstraction away from historical conjunctures and trajectories conceals much more than it reveals. Its limitations stem in part from the focus on the supposed preferences of leaders and citizens, in abstraction from the structural (historical and material) circumstances in which they acted, and the method of analysis employed, and in part from the universal truth that 'positive political science' obscures the logic and dynamics of every case it takes up, in order to produce an amalgam without analytical or predictive value. In Chapter Two, the authors identify as crucial for their argument situations where leaders who want to carry out economic reforms are prevented from doing so by opposition from powerful interests, which is an obstacle in itself, and a factor in causing potential investors to doubt whether the commitment is credible and therefore to stay their hands. In Chapter Three, though, the logic is reversed: leaders are seen as having to pursue economic reform because there is an increased demand for it, as it is seen as essential to improving the economic circumstances of citizens, and in a democracy, leaders intent on political survival must adopt policies which will benefit the electorate and so enable them to win elections. The conflict between this latter line of argument and their earlier insistence on the difficulty of reform (22-27) gets them into rather a tangle, as evidenced by their awkward attempt to reconcile these perspectives (53-7). At the same time, the discussion of the particular propensity of new leaders to seek such reforms is over-elaborate: a simpler explanation for the coincidence of the initiation of a PTA with a new leader is that the old leader did not want one but the new one does. If so, one would expect such a leader to set the process in motion immediately upon taking office, or as soon as the opportunity becomes available. In short, their major finding - that the PTAs adopted between the EU or the US and developing countries since 1990 have primarily been vehicles for securing binding commitments to a wide range of liberalising economic reforms aimed directly at building competitiveness on a global scale, is sound in itself, but unconvincingly argued.
In fact, Baccini and Urpelainen note at one point that '[Valerie] Bunce (2001) analyzes the relationship between democratization and reform in various regions, finding that a robust positive relationship is found in the post-communist world, while the evidence in Latin America and Southern Europe is more mixed' (52). She also argued, after a thorough review of the evidence, that '(t)here are compelling reasons - theoretical and empirical, contemporary and historical - to argue that democratization and economic reform are compatible processes, and yet to argue with equal vigor that these two dynamics of change are in considerable tension with each other' (ibid: 54). If so, this whole exercise is ill-judged. As noted above, the European Community/Union was responsible for 20 PTAs by 1997, the US for two. Ten of the first thirteen came in the 'Europe Agreements' signed with the Czech Republic, Hungary, Poland, Slovakia (1990), Bulgaria and Romania (1992), Slovenia (1993), and Estonia, Latvia, and Lithuania (1994). Morocco (1992), Tunisia (1993) and Turkey (1994) made up the total. Baccini and Urpelainen are perfectly well aware of the context (86, 125), but they do not dwell on the significance of the fact that the post-communist cases did not feature new leaders of new democracies as a general category, but new leaders of new democracies established following on the one hand the collapse of previous socialist or state-based trading networks and political systems, intense structural pressure to gain access to Western European markets at any price, and the concurrent domino effect that was pushing Western European non-members of the EU and close Mediterranean countries towards full membership or PTA negotiation respectively (Sapir, 1998: 726), and on the other the determination of the EC/EU to include in any agreement a series of stringent binding economic reforms with the express intent of driving forward the development of the world market as a whole. These 'Europe Agreements' were analysed in detail by Fernandez (1997: 25-7), who commented inter alia that '(u)nlike NAFTA and most other RTAs - and unlike other agreements between the European Union and less developed or emerging economies - the Europe agreements contain major provisions which will effectively bind the domestic economic policies of the CEE countries. The Agreements effectively require the application of EU competition policy law to trade between the EU and the CEE countries; questionable practices are to be judged by reference to EU law. Given the shaky legal structures of the CEE countries, and the importance of their trade with the EU, this amounts to little less than the wholesale extension of EU competition policy to the CEE countries' (ibid: 26). That is to say, the great majority of cases of successful PTA negotiations in circumstances of democratization and leader change come from a quite specific moment of reincorporation of formerly socialist countries into the global capitalist economy, and in the context, therefore, of 'specific conjunctural projects for the reorientation of capitalist production' (Shields, 2007: 161). Much more is lost than is gained by taking these cases out of context to claim findings of 'general relevance to international political economy' (101). In fact they can muster only fifteen cases of PTAs initiated with 'leader change under democratization' (Table 5.2, p. 112), and this, strangely, by including Salinas in Mexico twice (for EU and US PTAs) in the list, presumably because they are unfamiliar with the context. It is disappointing that no attempt is made to show that the political circumstances and trajectory of any of the early Eastern and Central European cases fitted the model, or to assess the significance of the PTAs in question in comparison with the concurrent activities of the US government, the IMF, the World Bank, and the EBRD. The result of all this is that the historical significance of the 'Europe agreements' in the specific context of the dissemination of the disciplines of the capitalist world market from 1990 is lost.
Against this background, the very thin 'qualitative case studies' are even more disappointing. They occupy barely more than a dozen pages each, and suggest that the authors know very little about them. The Croatian case is perfectly well accounted for by the logic set out by Sapir and Fernandez twenty years ago, and the PTA was a part of a much broader strategy led by the EU and involving security concerns and democracy promotion along with economic reforms (Grimm & Mathis, 2015); and the rich and fine-grained recent literature on the micropolitics of reform, and the difficulty of achieving it, points up painfully the poverty of the account offered by Baccini and Urpelainen (Grimm & Leininger, 2012; Gross & Grimm, 2014; Banovic, 2015; Gross and Grimm, 2016). On South Africa, the failings are greater still. Overwhelmingly the major actors involved in locking in economic reforms there were the IMF, the World Bank, and the local domestic and international business communities, and Mandela was close to them from the start, and committed and tied in to reform primarily through the GEAR programme adopted in 1996 (Williams & Taylor, 2000; Peet, 2002). Baccini and Urpelainen touch on some of this, but without reflecting on its relevance for their insistence on the importance of the PTAs. The degree of Mandela's political insecurity can be judged from the fact that the ANC took a massive majority and a steadily rising share of the vote in the elections of 1994, 1999 and 2004 (62.7%, 66.4% and 69.7% respectively), and the shallowness of the authors' knowledge is revealed by the fact that long-time Finance Minister and key World Bank figure Trevor Manuel is misidentified as Manuel Trevor (178). The Chilean and Colombian cases came in the context of a new US-initiated push in the region, and it would have been extraordinary if these two prominent neoliberal reformers (Colombia the longest-standing and most consistent example in the region) had not stepped forward to sign up; and both involved leaders whose hold on power was much more precarious than that of Mandela, casting doubt on the significance of new versus established democracies. The account given by Baccini and Urpelainen makes nothing of the fact in the Chilean case the principal issue was the reform of labour relations, on which the ILO took the lead, helping to devise the legislation eventually approved (Cook, 2007: 136), and that in both cases the PTA included chapters on both labour reform and environmental reform. The Chilean PTA, Quiliconi argues, 'was used as a template in the region as it set the precedent of incorporating labor and environmental standards, a requirement that all subsequent PTAs with the United States included (Quiliconi, 2014: 244). So in seeking to shoe-horn the Chilean case into their general model, they miss its specificity completely. In short, the US PTAs in this period came in a quite different context from the earlier EU cases, and had a different focus, as did the later EU cases, which reflected a new foreign policy orientation on its part associated with the 'Global Europe' strategy launched by the Commission in 2006. Taken together in their overall effects preferential trading agreements are not primarily about securing particular advantage for the EU or the US, but about driving forward the development of the world market as a whole. In particular, the depth and breadth of the pursuit of this goal by the EC/EU on an ever-expanding scale, over three decades, first in Central and Eastern Europe, then in its Mediterranean periphery and the Western Balkans, and finally on a genuinely global scale (Cammack, 2007) has been crucial feature shaping the political economy of reform over the last three decades, and it is another marker of the weakness of this text that this emerges only as through a glass, darkly.
References
Banovic, Ruzica Simic 2015. 'Cutting the Red Ribbon but not the Red Tape: the failure of business environment reform in Croatia', Post-Communist Economics, 27, 1, 106-128.
Cammack, Paul 1999a. 'Interpreting ASEM: interregionalism and the new materialism', Journal of the Asia Pacific Economy, 4, 1, 13-32.
Cammack, Paul 1999b. 'Mercosur: From domestic concerns to regional influence', in Glenn Hook and Ian Kearns, eds, Subregionalism and World Order, Macmillan, Basingstoke, 95-115.
Cammack, Paul 2007. ‘Competitiveness and Convergence: the Open Method of Coordination in Latin America’, Papers in the Politics of Global Competitiveness, No. 5, Institute for Global Studies, Manchester Metropolitan University, e-space Open Access Repository.
Cook, Maria Lorena 2007. The Politics of Labor Market Reform in Latin America: Between Flexibility and Rights, University Park, Pennsylvania.
Dür, Andreas, Leonardo Baccini and Manfred Elsig 2014. 'The Design of International Trade Agreements: Introducing a New Database', Review of International Organizations, 9,3, 353-375.
Fernandez, Raquel 1997. Returns to regionalism: an evaluation of non-traditional gains from RTAs, Discussion Paper No. 1634, CEPR, London.
Gill, Stephen 1998. 'New Constitutionalism, Democratisation and Global Political Economy', Pacifica Review, 10, 1, 23-38.
Keefer, Philip 2007. 'Clientelism, Credibility, and the Policy Choices of Young Democracies', American Journal of Political Science, 51, 4, 804-821.
Grimm, Sonja, and Julia Leininger 2012. 'Not All Good Things Go Together: conflicting objectives in democracy promotion', Democratization, 19, 3, 391-414.
Grimm, Sonja, and Okka Lou Mathis 2015. 'Stability First, Development Second, Democracy Third: The European Union’s Policy towards the Post-Conflict Western Balkans, 1991–2010', Europe-Asia Studies, 67, 6, 916-947.
Gross, Lisa, and Sonja Grimm 2014. 'The External-Domestic Interplay in Democracy Promotion: a case study on public administration
reform in Croatia', Democratization, 21, 5, 912-936.
Gross, Lisa, and Sonja Grimm 2016. 'Conflicts of preferences and domestic constraints: understanding reform failure in liberal statebuilding and democracy promotion', Contemporary Politics, 22, 2, 125-143.
Keefer, Philip, and Razvan Vlaicu 2008. 'Democracy, Credibility, and Clientelism', Journal of Law, Economics & Organization, 24, 2, 371-406.
Nunn, Alex and Sophia Price 2004. 'Managing Development: EU and African Relations through the Evolution of the Lomé and Cotonou Agreements', Historical Materialism, 12, 4, 203-230.
OECD 1979. The Impact of the Newly Industrialising Countries on Production and Trade in Manufactures, Paris.
Peet, Richard 2002. 'Ideology, Discourse, and the Geography of Hegemony: From socialist to neoliberal development in postapartheid South Africa', Antipode, 34, 1, 54-84.
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Sapir, André 1998. 'The political economy of EC regionalism', European Economic Review, 42, 3-5, 717-732.
Shields, Stuart 2007. 'From Socialist Solidarity to neo-populist Neoliberalization? The paradoxes of Poland's post-communist transition', Capital & Class, 93, 159-178.
Williams, Paul, and Ian Taylor 2000. 'Neoliberalism and the Political Economy of the 'New' South Africa, New Political Economy, 5, 1, 21-40.
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So the argument of Cutting the Gordian Knot (another classical reference, to Alexander the Great this time, and a metaphor for a swift solution to an intractable problem) is that 'international institutions' can help leaders who wish to implement liberalizing reforms to overcome domestic opposition and achieve their goals. By 'international institutions' the authors mean not only organizations such as the IMF and the World Bank, but also, and primarily, formal arrangements that dictate or structure behaviour. Their primary focus is on preferential trading agreements between the European Union or the US and individual states in the 'South'. Such international institutions, they argue, 'provide leaders with new means to enhance the credibility of, and to create political support for, economic reform' (2). Legally binding commitments regarding domestic reform of the kind made in North-South preferential trading agreements are the price to be paid up front for better market access, and a price worth paying for some who might otherwise be reluctant to accept them; and binding commitment itself makes it more likely that such reforms will be carried out. As for their content, although PTAs are nominally trade agreements, 'both EU and US PTAs contain a range of provisions that prescribe deep economic reforms across the board. They constrain public subsidies to domestic companies, they expand the coverage of patent protection, they mandate dispute resolution between foreign investors and the state upon a dispute between the two, and they pry open the financial sector for European and American banks' (4). Such a PTA is not strictly a cause of reform, they say, but it enables reform 'by leaders who want it but cannot implement it by purely domestic means'. This suggests that 'we should see leaders of developing countries pursue PTA negotiations with the European Union and/or the United States when these leaders believe that their political economic fortunes would be improved by economic reforms but they face political difficulties in their implementation'; that 'we would expect the formation of a PTA to be associated with major changes in the economic policies of developing countries that form these PTAs', and that 'the PTAs should contain provisions that specifically prescribe a wide variety of deep economic reforms' (5). And in fact Baccini and Urpelainen go further, arguing not only that PTAs 'are not all about trade, and often their most important effects are only indirectly related to trade' (7), but also that they have been 'designed to maximise their effect on economic reform' (9).
This is a strong claim. What is more, it is true, and in demonstrating it, they challenge more narrowly focused mainstream theories of trade, and identify a leading feature of the contemporary governance of the global political economy. But of course, if these PTAs were designed to bring about economic reform, it can hardly be a novel discovery - somebody at least must have known about it all along, and will not be at all surprised. And, curiously enough, Keefer is among those who do - he knows it perfectly well, and is only affecting to find the argument novel or surprising. He is a skilled practitioner of the dark arts of 'credible commitment' that underpin them, with a string of influential articles, including a couple of World Bank papers with their origins in the first years of the current century (eventually published as Keefer 2007, 2008, the first of them cited here), and around 25,000 citations to his credit. So something is amiss.
In fact, if you go back nearly forty years, you find the OECD, supposedly a 'rich countries' club', unreservedly welcoming competitive exports from the NICs (Newly Industrialising Countries) on the specific grounds that they would be a 'spur to increased productivity' in the advanced industrial countries (OECD, 1979: 5). Keen as always to see capitalism develop on a global scale, it insisted that the advanced economies should not resort to protectionism to keep out competitive imports. Instead, workers who formerly produced goods that were now imported should be ‘employed to produce something else’, while ‘labour-saving investment and rationalisation to meet competition from low labour-cost countries’ would bring about further productivity gains. And it recognised the political challenge posed by what is known in the business as 'time inconsistency' (roughly, things don't happen in the order you would like): some jobs would be lost, with women and the unskilled most affected, some wages would fall, and the intensity of work would be speeded up. In other words, ‘serious frictional adjustment problems’ were to be expected (ibid). Short-term pain would therefore have to be managed in order to secure long-term gain: while the long run prospects were positive, ‘over the shorter term ... there [was] no guarantee that the necessary adjustments [would] come about smoothly or painlessly’ (ibid: 14). So the issue that Baccini and Urpelainen present as 'one of the great puzzles in the field of political economy' - 'the ability of national leaders to implement liberalizing policies', given the immense difficulty of reform (2) - was identified as a problem in international policy-making circles four decades ago. In response, means were sought to help reform-minded governments to see the 'right' policies through, mostly in liberal democracies in which 'populists' (a catch-all term for any opponent of the politics of global competitiveness) sought to resist them. This gave rise in the 1990s to what the World Bank calls the 'political economy of reform' - essentially, the science, or art, of getting recalcitrant publics - whether businesses or workers - to accept the pro-competition, world market-building reforms that the Bank knows we need and wants us to want. So, reviewing the political economy of European Community regionalism in 1998, André Sapir noted that regional integration had been 'primarily centred in or on Europe,' and that the 'acceleration in the number of agreements notified since 1990 is almost entirely due to changes in the countries of Central and Eastern Europe [CEECs], which account for three-quarters of such RTAs [Regional Trade Agreements], most of them concluded with the EC or with EFTA members' (Sapir, 1998: 718). Exploring the logic of recent agreements, Sapir highlighted 'domino' effects and 'time inconsistency'. When the EC adopted the Single Market programme in the 1980s, it had the domino effect of attracting a wave of requests for membership from European non-members worried about losing market shares, and the subsequent collapse of the Soviet trading system led to a wave of requests for trading agreements from the newly independent countries of Central and Eastern Europe and close Mediterranean neighbours. He then went on to say:
'There is a second factor underlying the desire of the CEECs to participate in RTAs with the EC. As noted, inter alia, by Fernandez (1997), Europe Agreements offer a credible commitment device for implementing otherwise time-inconsistent economic reforms (concerning trade and domestic policy) and political reforms (aimed at devising stable institutions guaranteeing democracy). In the aftermath of their political transformation in 1989, the CEECs implemented major trade liberalisation programmes. The experience of other reforming countries suggested, however, that trade liberalisation was going to be difficult to sustain over a long period, unless governments succeeded in establishing credible commitment mechanisms' (ibid: 725-6).
A footnote to this passage (ft. 13, p. 725) notes that '(t)he idea of a RTA between a richer and a poorer trading partner with the explicit (but not necessarily sole) purpose of helping to implement economic and political reforms in the poorer partner probably goes back to the accession of Greece to the EC in 1981. The accession of Portugal and Spain in 1986 also fits the model. Similarly, the drive of Mexico in favour of NAFTA was partly related to its desire to lock in economic reforms'; and Sapir adds that 'Fernandez (1997) rightly insists that the scope of the Europe Agreements extends far beyond free trade. The Agreements contain major provisions imposing the approximation of EC law, thereby effectively binding the domestic economic policies of the CEECs in areas such as competition and investment policy' (ibid: 726). Raquel Fernandez, whose cited paper was prepared under the auspices of the World Bank's International Trade Division's programme in international trade and investment, also discussed the 'several possible benefits that RTAs might confer to their partners, including credibility, signaling, bargaining power, insurance, and coordination' (ibid: 1).
The EC/EU, the OECD, and the World Bank in particular have been 'helping' ever since by devising strategies and techniques aimed at securing the implementation, embedding and acceptance of policies intended to extend the world market and disseminate an all-encompassing politics of global competitiveness; would-be reformers in the developing world have been quick learners, following the strategy of identifying winners and losers, going for 'quick wins' to build supportive coalitions and keep opponents of reform at bay, and adopting a variety of devices, including international agreements, to 'lock in' economic reforms by removing them from domestic contestation (Gill, 1998: 34-5; Cammack, 1999a: 14, 1999b: 96-7; Nunn and Price, 2004). This has remained a constant feature of the political economy of reform, and as it happens the issue of credible commitment is central to the World Bank's World Development Report 2017: Governance and the Law, which highlights trade agreements among 'transnational rules that provide incentives for a credible commitment to domestic reform', cites the fact that prospective members of the EU 'have to change their domestic rules to abide by the 80,000 pages of regulations in the acquis communautaire', notes that 'the benefits of accession were used by elites to overcome domestic resistance to the required reforms', and ascribes the same logic to China's entry to the WTO (World Bank, 2017: 262-3). So there is nothing here that is novel or surprising. And of course, this cannot come as news to anyone half familiar with the classical Marxist critique of political economy: Marx and Engels saw foreign trade as confronting higher cost/lower productivity domestic producers with a choice between going out of business, forcing wages down, or investing to compete, and made this insight central to their analysis of competition and the rise of the world market.
What has gone wrong here then? In part the problem is a simple lack of familiarity with literature that bears directly on the topic. But this is compounded by the adherence of the authors to the methodology of 'positive political science', with its search for universal laws in abstraction from specific historical and material circumstances, or socio-political conjunctures. They have a set of 69 PTAs in force or under negotiation, from a useful database put together by Baccini and two other colleagues (Dür et al, 2014). Of these, 30 are with the EU, 19 with the US, and 10 each with China and Japan. Chinese PTAs, which understandably do not include binding commitments to liberalisation, are not examined in detail; nor in fact are Japan's, on the shaky grounds that while they do often include such binding commitments, they are practically all signed with regional partners (Chile and Mexico being exceptions). Preceding the introduction of the database, Chapter Two offers 'a general theory of when and how leaders can use international institutions to promote economic reform', and reviews the development of the politics of the political economy of reform over the last thirty years: here Baccini and Urpelainen situate themselves in the lineage of the political economy of reform that goes back to the 1980s, citing contributors such as Joan Nelson, Stephan Haggard, Robert Kaufman, Robert Pastor and Carol Wise. Chapter Three identifies new leaders in newly established democracies as the most likely to want sign a PTA with the EU or the US as a means to maximising their prospects of carrying through liberalising economic reforms at home; Chapter Four examines the design of the set of PTAs negotiated from 1990 onwards, and Chapter Five explores the process by which they came into being. Chapter Six looks at the relationship between PTAs and economic reform; Chapters Seven and Eight provide case studies of reform in pairs of new and established democracies respectively (Croatia and South Africa, and Chile and Colombia); and the conclusion (Chapter Nine) reflects on the significance of the findings.
Baccini and Urpelainen report that the EU was the first to develop PTAs in numbers from 1990 onwards (twenty by 1997, compared with only two - NAFTA and Vietnam - for the US), and has the most PTA partners. Binding commitments to liberalisation are almost entirely concentrated in the period since 1990. The analysis focuses on intellectual property rights, liberalisation in services, foreign direct investment, competition policy and government procurement as examples of areas of economic reform, a set that gives a rounded picture of world market- and competitiveness-promoting reforms. The US is most insistent on IPR provisions, averaging 12 per PTA, compared with 5.5 for the EU (and 4.5 for Japan). On the liberalisation of services, all US PTAs include a chapter; so do the majority of EU PTAs, but only after the Treaty of Lisbon shifted competence in this area and over foreign investment to the Commission. On investment, EU PTAs generally include reference to investment liberalisation and protection as a general aim, while all US PTAs but one contain a substantive chapter. On competition policy, the EU leads, including substantive chapters in a clear majority of cases, while the US includes such a chapter in just under half. On government procurement, the EU includes a chapter in just under half, the US in practically all. This is all fine, as far as it goes. The authors give a sense, albeit incomplete, of the intellectual and practical effort invested by internationally oriented policy-makers in international organisations, the EU, and the US, and their academic acolytes, in devising techniques to draw developing countries into the world market in ways that embed competitiveness both nationally and across the system as a whole. They provide clear evidence that 'recent EU and US PTAs indeed contain a large number of provisions that demand intrusive economic reforms ... with stringent conditions imposed on the implementation of a wide variety of economic policies' (83-4), and to this extent they are informative about the broader framework within which PTAs are formed, and revealing on the logic of North-South trade agreements, and the intent behind them. Anyone who still clings to the illusion that international organisations and institutions are 'technical' and 'neutral' rather than strategic and political should think again. The practices explored here have been hugely successful in changing the world to enhance the power of capital.
But the abstraction away from historical conjunctures and trajectories conceals much more than it reveals. Its limitations stem in part from the focus on the supposed preferences of leaders and citizens, in abstraction from the structural (historical and material) circumstances in which they acted, and the method of analysis employed, and in part from the universal truth that 'positive political science' obscures the logic and dynamics of every case it takes up, in order to produce an amalgam without analytical or predictive value. In Chapter Two, the authors identify as crucial for their argument situations where leaders who want to carry out economic reforms are prevented from doing so by opposition from powerful interests, which is an obstacle in itself, and a factor in causing potential investors to doubt whether the commitment is credible and therefore to stay their hands. In Chapter Three, though, the logic is reversed: leaders are seen as having to pursue economic reform because there is an increased demand for it, as it is seen as essential to improving the economic circumstances of citizens, and in a democracy, leaders intent on political survival must adopt policies which will benefit the electorate and so enable them to win elections. The conflict between this latter line of argument and their earlier insistence on the difficulty of reform (22-27) gets them into rather a tangle, as evidenced by their awkward attempt to reconcile these perspectives (53-7). At the same time, the discussion of the particular propensity of new leaders to seek such reforms is over-elaborate: a simpler explanation for the coincidence of the initiation of a PTA with a new leader is that the old leader did not want one but the new one does. If so, one would expect such a leader to set the process in motion immediately upon taking office, or as soon as the opportunity becomes available. In short, their major finding - that the PTAs adopted between the EU or the US and developing countries since 1990 have primarily been vehicles for securing binding commitments to a wide range of liberalising economic reforms aimed directly at building competitiveness on a global scale, is sound in itself, but unconvincingly argued.
In fact, Baccini and Urpelainen note at one point that '[Valerie] Bunce (2001) analyzes the relationship between democratization and reform in various regions, finding that a robust positive relationship is found in the post-communist world, while the evidence in Latin America and Southern Europe is more mixed' (52). She also argued, after a thorough review of the evidence, that '(t)here are compelling reasons - theoretical and empirical, contemporary and historical - to argue that democratization and economic reform are compatible processes, and yet to argue with equal vigor that these two dynamics of change are in considerable tension with each other' (ibid: 54). If so, this whole exercise is ill-judged. As noted above, the European Community/Union was responsible for 20 PTAs by 1997, the US for two. Ten of the first thirteen came in the 'Europe Agreements' signed with the Czech Republic, Hungary, Poland, Slovakia (1990), Bulgaria and Romania (1992), Slovenia (1993), and Estonia, Latvia, and Lithuania (1994). Morocco (1992), Tunisia (1993) and Turkey (1994) made up the total. Baccini and Urpelainen are perfectly well aware of the context (86, 125), but they do not dwell on the significance of the fact that the post-communist cases did not feature new leaders of new democracies as a general category, but new leaders of new democracies established following on the one hand the collapse of previous socialist or state-based trading networks and political systems, intense structural pressure to gain access to Western European markets at any price, and the concurrent domino effect that was pushing Western European non-members of the EU and close Mediterranean countries towards full membership or PTA negotiation respectively (Sapir, 1998: 726), and on the other the determination of the EC/EU to include in any agreement a series of stringent binding economic reforms with the express intent of driving forward the development of the world market as a whole. These 'Europe Agreements' were analysed in detail by Fernandez (1997: 25-7), who commented inter alia that '(u)nlike NAFTA and most other RTAs - and unlike other agreements between the European Union and less developed or emerging economies - the Europe agreements contain major provisions which will effectively bind the domestic economic policies of the CEE countries. The Agreements effectively require the application of EU competition policy law to trade between the EU and the CEE countries; questionable practices are to be judged by reference to EU law. Given the shaky legal structures of the CEE countries, and the importance of their trade with the EU, this amounts to little less than the wholesale extension of EU competition policy to the CEE countries' (ibid: 26). That is to say, the great majority of cases of successful PTA negotiations in circumstances of democratization and leader change come from a quite specific moment of reincorporation of formerly socialist countries into the global capitalist economy, and in the context, therefore, of 'specific conjunctural projects for the reorientation of capitalist production' (Shields, 2007: 161). Much more is lost than is gained by taking these cases out of context to claim findings of 'general relevance to international political economy' (101). In fact they can muster only fifteen cases of PTAs initiated with 'leader change under democratization' (Table 5.2, p. 112), and this, strangely, by including Salinas in Mexico twice (for EU and US PTAs) in the list, presumably because they are unfamiliar with the context. It is disappointing that no attempt is made to show that the political circumstances and trajectory of any of the early Eastern and Central European cases fitted the model, or to assess the significance of the PTAs in question in comparison with the concurrent activities of the US government, the IMF, the World Bank, and the EBRD. The result of all this is that the historical significance of the 'Europe agreements' in the specific context of the dissemination of the disciplines of the capitalist world market from 1990 is lost.
Against this background, the very thin 'qualitative case studies' are even more disappointing. They occupy barely more than a dozen pages each, and suggest that the authors know very little about them. The Croatian case is perfectly well accounted for by the logic set out by Sapir and Fernandez twenty years ago, and the PTA was a part of a much broader strategy led by the EU and involving security concerns and democracy promotion along with economic reforms (Grimm & Mathis, 2015); and the rich and fine-grained recent literature on the micropolitics of reform, and the difficulty of achieving it, points up painfully the poverty of the account offered by Baccini and Urpelainen (Grimm & Leininger, 2012; Gross & Grimm, 2014; Banovic, 2015; Gross and Grimm, 2016). On South Africa, the failings are greater still. Overwhelmingly the major actors involved in locking in economic reforms there were the IMF, the World Bank, and the local domestic and international business communities, and Mandela was close to them from the start, and committed and tied in to reform primarily through the GEAR programme adopted in 1996 (Williams & Taylor, 2000; Peet, 2002). Baccini and Urpelainen touch on some of this, but without reflecting on its relevance for their insistence on the importance of the PTAs. The degree of Mandela's political insecurity can be judged from the fact that the ANC took a massive majority and a steadily rising share of the vote in the elections of 1994, 1999 and 2004 (62.7%, 66.4% and 69.7% respectively), and the shallowness of the authors' knowledge is revealed by the fact that long-time Finance Minister and key World Bank figure Trevor Manuel is misidentified as Manuel Trevor (178). The Chilean and Colombian cases came in the context of a new US-initiated push in the region, and it would have been extraordinary if these two prominent neoliberal reformers (Colombia the longest-standing and most consistent example in the region) had not stepped forward to sign up; and both involved leaders whose hold on power was much more precarious than that of Mandela, casting doubt on the significance of new versus established democracies. The account given by Baccini and Urpelainen makes nothing of the fact in the Chilean case the principal issue was the reform of labour relations, on which the ILO took the lead, helping to devise the legislation eventually approved (Cook, 2007: 136), and that in both cases the PTA included chapters on both labour reform and environmental reform. The Chilean PTA, Quiliconi argues, 'was used as a template in the region as it set the precedent of incorporating labor and environmental standards, a requirement that all subsequent PTAs with the United States included (Quiliconi, 2014: 244). So in seeking to shoe-horn the Chilean case into their general model, they miss its specificity completely. In short, the US PTAs in this period came in a quite different context from the earlier EU cases, and had a different focus, as did the later EU cases, which reflected a new foreign policy orientation on its part associated with the 'Global Europe' strategy launched by the Commission in 2006. Taken together in their overall effects preferential trading agreements are not primarily about securing particular advantage for the EU or the US, but about driving forward the development of the world market as a whole. In particular, the depth and breadth of the pursuit of this goal by the EC/EU on an ever-expanding scale, over three decades, first in Central and Eastern Europe, then in its Mediterranean periphery and the Western Balkans, and finally on a genuinely global scale (Cammack, 2007) has been crucial feature shaping the political economy of reform over the last three decades, and it is another marker of the weakness of this text that this emerges only as through a glass, darkly.
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