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International power and new institutions

International power and new institutions

Summary: this paper takes some of the material so far published here on game theory, social policing and reputation and applies this to the international arena. We look at the conditions of trust that would be necessary in order to predispose the world to develop stronger international institutions. We suggest that success in achieving this arises from developing 'trust clubs', not grandiose and all-inclusive structures. Such activities will need to be managed, and will not arise spontaneously. We also show that environments which do not predispose nations to mutual trust will weaken any such efforts, limiting what can be expected by way of growth in conventional international collaboration, trade and information exchange.

Two archetypes, collaboration and antipathy.

Two archetypes, collaboration and antipathy.

Elsewhere, we have assessed the likely movement of the major world players in response to two archetype worlds that could develop in 2030. In one of these, collaboration is rewarded more than short-term self-regard, whilst the other has a dynamic which discounts trust in long-range cooperation over short term advantage. Such short-term focus can and does create the grounds for exchange and mutual profit, but this is largely confined to commerce and essentially excludes any measures whereby a country cedes power to collective institutions in order to gain overall advantage.

Any future entailing nine billion people and a doubled world product will be substantially more complex than the world of today. Managing complexity is a crucial step to coping in such an environment. Readers will recall the model which we have advanced: that the capacity to manage complexity advances at a different pace in the economic, social and institutional spheres. Commerce almost always outpaces society, and society usually changes faster than its institutions can develop. (More here on the way social attitudes and values may change by 2030.)

Nations for which this mismatch becomes acute - or where one or more of these factors develop in ways which actively hinder complexity management in the others - will either fail to develop, or collapse to the level of activity set by the weakest of the three axes.

As we have seen, this model has poignant messages for the former Soviet Union, the Middle East and the poor developing countries. It is particularly evident in nations which have wealth pumped into them from outside, either as a client or as a primary producer. Amongst other things, this may have strong messages for the current prosperity in Russia.

The international arena is, in effect, a developing country. Trade, political and social connections are growing at unprecedented speed. Consequently, exactly the same considerations apply to the capacity of this fabric to contain the forces which are being unleashed. Consider energy supply, for an example. This was initially a purely commercial-technical issue, with some level of negotiation or conquest at the supply side and some concerns about safety at the delivery end. It is now a primarily geopolitical-macroeconomic issue, with tendrils which reach into everything from environmental accords to economic development, military planning and how the industrial societies will run their economies and society. It - and the questions which it raises - are immensely complex, and not on the whole susceptible to bilateral or pragmatic solutions.

What happens if the international environment cannot cope with this sort of complexity? Then, plainly, solutions do not emerge and the development of everything that depends on these solutions is blunted, rendered more complex or simply aborted. This, in its turn, has ramifications. What happens when Soviet governance, Japanese banks or third world institutions fail? The system slows, old forms fail and new formulae have to be adopted before progress again picks up.

Paths to the archetypes: so why collaborate?

Paths to the archetypes: so why collaborate?

It is not enough to say that the international environment is or is not favourable to collaboration: that is, that its institutions and arrangements can or cannot carry the weight of events. We need to define for ourselves what makes up such a regime. (The lack of collaboration is, perhaps, the natural order of things, and hardly needs description!) It turns out that the right place to start to ask questions about international collaboration is around individual cooperation, and for this discussion to be useful, we have to see how deeply rooted in our biology such cooperation in fact is embedded.

We have discussed game theory elsewhere, noting that a crucial new factor is the role of reputation and information in determining the outcome of games. The desire to police and to punish defectors - even at personal cost - has been shown to be innate to all human societies that have been studies. This fact creates environments in which "economic man" - exhibiting purely self-regarding and profit-seeking behaviour - will nevertheless be constrained to behave in a collective, cooperative manner. These environments are rather specific, however, and depend on the kinds of transactions which are being undertaken. Where what I do complements what you are doing, then it pays rational players to behave in a collaborative manner. Where what I do undercuts what you do, then it is best for me to outwit the slowest player. In a world where transactions tend to generate net additonal wealth, we drop into collaborative mode. Where transactions are zero sum - as they are in share trading, but not inrisk arbitrage, for example - then economic man behaves in a predatory manner. If we are baking cakes, we collaborate; if we are slicing them, we try to beggar our neighbour.

Naturally, any economy and the international environment is a mixture of these two type sof environment. To date, however, trade has been a strongly positive sum activity: we all prosper by collaboration, and comparative advantage ensures that even poorly-equipped competitors do better through trade than isolation. However, this is true only when systems are in equilibrium: notoriously, closed economies which open themselves undergo painful and destructive periods of adjustment; countries with distorted exchange rates can lose by trade; countries with irrational or "strategic" policies can dump products onto the markets of others; cartels can capture rents to the cost of their trading partners.

How people behave towards us depends strongly on how they perceive us, and how they view the situation in which they find themselves. If they can cheat and get away with it - or if they see others as likely to cheat and so steal a small prize - then they will usually forego the large prize and do so. If they cannot get away with it, then they collaborate. The do so because they know that the penalties for defection plus the gains from assured mutual collaboration are greater than the gains from a quick, small win.

This is, of course, much more than just what is meant by "reputation". Hindus and Buddhists see individuals weighted down by kurma, the sum of many lives of defection and over-engagement; Middle Eastern religions speak of the accumulation of sin. In the absence of such divine accounting, however, our reputation depends on the information which others can know directly or infer about our past record in relevant transactions.

In village or closed communities, this knowledge can be direct. Mothers of heiresses used to code young men as, for example "UIT" (Unsafe in Taxis, meaning best not left alone with the daughter) or as "NAB" (Not A Bean, or penniless) and exchange reputations of this sort in coded gossip. In broader communities, however, this specific type of information is not available. We have to go on a person's brand, or else learn about them slowly.

Elsewhere, we have discussed self-defining narratives - "What sort of person am I, and how should I behave?" - and strong brands are entailed on these narratives. How I should present myself, and how I should react to other self-representations, is very much tied up in such interfaces. Individuals and groups have to weigh up the brand and the narrative as against their experience of and stories that they hear about the realities behind these. Brands which are not reinforced by experience will lose their validity.

Collective brands, such as that of being a gentleman, or a citizen of an upstanding country, have meaning only if the community in question (whether gentlemen or Swedish peace-maker) enforces its values. However, the cost of policing a reputation brand must be less than the gains which its members make from it. What is policed is usually focused on the nature of that advantage, and focused on what has to be done to protect the brand, not to aspire to some universal ideal. Genteel groups often stand on the hands of those immediately below them on the ladder, so limiting access to their advantages. Trust confers huge advantages to the groups which have won it, and they are always loath to share this and so disperse it.

Societies need to do some work if this narrow focus is to be broadened to something approaching universal collaboration. This is done through a mixture of law and narrative, of common expectations of what a doctor or school teacher should do, and not do. Either can lose their 'license' for doing things which are not, in any strict sense, illegal for the general run of society. This is done because the brand requires higher standards of conduct in certain focused areas from these groups. Given this, we allow them to do things to us and our offspring which we would not allow random individuals to do. However, there are powerful mechanisms that make sure that internal brand policing - by, for example, Britain's General Medical Council - is not self-serving but rather at least somewhat aligned with the overall needs of the community.

Ultimately, however, reputation is meaningful only when those interacting with it have some measure of choice. There are two obvious instances where it is not meaningful:

By contrast to this, information and reputation are meaningful only where there is a choice at stake - to choose whether to buy, or to chose between suppliers, for example - and when those making the choice can also retaliate after the event - if, for example, they believe that they have been cheated. This structure gives rise to three distinct situations in which information and reputation matter. These can, of course, mix together seamlessly:

The international arena

The international arena

The international arena has seldom depended so much on mutual forbearance and trust as it does today. Terabytes of information, trillions of dollars, megatonnes of cargo, petajoules of energy are transferred across borders. Military systems can eradicate civilisations in hours. Cultural artefacts aimed at the masses entertain and inform billions daily. The grounds for this trust are, essentially, intangible and they rest on two foundations: essentially, that mutual trust conveys enormous advantages, and that few players can see a better way to act for their own medium term benefit.

There is an immensely strong narrative and brand associated with the momentum generated by this. Some of the smaller agents dissent, but they are far more conspicuous than their actions in fact merit. The brand may or may not reflect reality, whatever that may mean in this context, but it has been created by and certainly serves the interests of the powers temporal, the industrial nations, their commercial structures and their consumer classes and elites.

We began by noting that the international arena is a developing entity, and that its innately commercial-security thrust has to be supplemented by institutional and perhaps socially-oriented structures if it is to support the extra weight that is to be put upon it. The brand narrative is, however, almost exclusively commercial in its nature. The development agencies have acquired concerns that map less directly onto financial and commercial than institutional issues to them in the past decade. Adventures have been made in the name of security and regime change in order to project a 'social' - or anyway societal - dimension into this. Some moves have been made towards mutual environmental concerns, food security and the management of mass migration.

There are, however, plain issues of mutual social impact that we can foresee in the next decades. If these act as a brake on trade, as our analysis would suggest is possible, then we may lack the institutions to handle this. Commercial and financial integration creates additional new risks, which make trade constraints even more dangerous. Further, a weakening of extant structures would undermine the core narrative itself, and with it our trust in the inevitability of the long term stability of the system. Larger players could see reason to default.

The international system has acquired several hundred agencies. The G8 mechanism and the UN security council are diplomatic structures whereby opinions are taken from the powerful flags, and the UN plenary where they are taken from the bunting. Aside from a plethora of additional structures that undertake analysis and watching briefs, the important agencies are charged with, essentially, two types of task. On the one hand, some of them formalise the workings of international transactions - air travel, trade - and serve as a forum for resolving disputes and arriving at forms of mutually-agreed regulation. The other type of agency is in effect a subcontractor to the first, handling specific problems such as conflicts and disasters, failed development and public sector research.

The bulk of international affairs is, however, handled entirely within nations themselves. The international agencies are helpful to the extent that the depersonalise the language, offering something analogous to custom and case law when issues of contention arise. However, resolution amongst the powerful depends entirely on the willingness of the players to accede. In essence, each has to give some power to the collective - a collective which it trusts - in order to get a greater advantage. Further developments in the international institutions waits upon this trust: a trust which is not extended universally, but one held within a tightly knit and mutually dependent group of countries.

It is, perhaps, for this reason that the US superpower has not put its weight behind the Kyoto climate management accord or the establishment of the World Court. These are too utopian, too universalist, and open the doors to exploitation by agents whom the US does not trust enough for it to be prepared to cede sovereignty. What might well have worked was an accord amongst a select group of nations to limit carbon emissions, or to agree mutual policing of rogue leaders.

Here, however, we see the roots of a major problem for the future. Major new players are not fully accredited members of the 'trusted brand' club. After fifty years, Japan has been admitted to it; but India, China, the new Russia and other potential powers such as Brazil certainly are not. However, at least some of these will be major economic powers, and will have middle class populations which do not see why they have to play by the rules of the Twentieth Century founding fathers. We need to trust them, but we do not see how to do so.

We discussed the 'village' model of the community. Here, whom one trusts or does not trust is informed by a near-perfect knowledge of individual reputation and intent. One can see a myriad of mechanisms of proportional retaliation to hand. This is how the central club has run its mechanisms of trust up until now. Plainly, it cannot easily be extended to the new players without either risk or something new being done to reinforce it.

We can be reasonably clear what such a mechanism does not look like. It does not look like a world government. Rather, it may resemble an inner and outer cabinet, with a core group of nations and interests which trust each other implicitly - and have all of the information loops and feedback mechanisms that are needed to do this - and an outer shell, of important entities which are treated distinctly and to their advantage when they act in ways which win the provisional trust of the core. Beyond this, there exist all of the other nations and interest that have not yet graduated. One could imagine Singapore coming from the outer layer to the inner one over a fifty year period extending from 1960 to, perhaps, 2010. Japan arrived in the core in around 1995, perhaps - the dates are illustrative, but plainly the US did not extend the same trust to Japan in 1985 as it did in 1995.

This model will take a great deal of effort if it is to work. The 'natural' evolutionary path will not deliver it, and there is an additional limit, which is that of time. A China or India is presently amenable to persuasion in a way which an economically triumphant nation ten years from now will not. But of what do they need to be persuaded?

We have discussed the sources of trust earlier. Words like 'transparency', 'information', 'predictability'; phrases such as 'mutual interest', 'common narrative', 'institutional integrity' and 'clarity of motivation and ambition' all have their role to play in a discussion which the reader can easily assemble for themselves. The aspirant members of the central club need to bind themselves into the economic, institutional and - although here be all manner of dragons - social momentum of that club. Bind themselves, meaning to make mutual commitments that expose them to risk, but gain them concomitant of greater benefits.

It may well be that the grand structures of international accords continue to develop. However, these will only be meaningful if the major players mean what they say, and they will do this only when - on their assessment of the correct timeframe and risk exposure to adopt - it suits them to do so. If the other important players are not 'serious' - or if the accord exposes them to a myriad of pinpricks from minor players, non-national groups and legal challenges - then these accords will either not be adopted or will not be meaningful. There are myriads of UN plenary resolutions that have had no consequences, because major players did not want them to do so.

On a closing note, let us think about the collaborative and aggressive environments with which we started. If the above scheme looks to be on the table, in any credible shape or form, then major players will be more inclined to extend forbearance and trust. Their discount rates will be lower: they will value far off things more than they otherwise would as compared to short-term gains. If, by contrast, they feel themselves beleaguered by erratic forces, confronted with an aging population and dissolving sources of economic and technical advantage, then they will be much less inclined to act in this way. They will abandon attempts to enlarge the club and instead concentrate on reinforcing its walls. And, of course, that way lies a spiral of retaliation and isolation; and the pattern of aggression which we would all hope to avoid.

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