Commercial Liberalism: State Preferences Based on Economic Interests Commercial liberal theories seek to explain the international behavior of states based on the domestic and global market position of domestic firms, workers, and owners of assets. Commercial liberal theory posits that changes in the structure of the domestic and global economy alter the costs and benefits of transnational economic exchange, thus creating pressure on domestic governments to facilitate or block such exchanges through appropriate foreign economic and security policies.
Commercial liberal theory does not predict that economic incentives automatically generate universal free trade and peace, but focuses instead on the interplay between aggregate incentives and distributional consequences. The greater the economic benefits for powerful private actors, the greater their incentive, all other things equal, to press governments to facilitate such transactions; the more costly the adjustment imposed by the proposed economic exchanges, the more opposition is likely to arise. As Dani Rodrik has argued, contemporary trade liberalization generates domestic distributional shifts totaling many times aggregate welfare benefits. Losers generally tend to be better identified and organized than beneficiaries. A major source of protection, liberals predict, lies in uncompetitive, un diversified, and monopolistic sectors or factors of production. Their pressure induces a systematic divergence from laissez-faire policies-a tendency
recognized by Adam Smith, who famously complained of mercantilism that "the contrivers of this whole mercantile system [are] the producers, whose interest has been so carefully attended to.” This commercial liberal approach to analyzing conflict over foreign economic policy is distinct from those of realism (emphasizing security concerns and relative power), institutionalism (informational and institutional constraints on optimal interstate collective action), and constructivism (beliefs about "free trade"). Extensive research supports the view that free trade is most likely where strong competitiveness, extensive intra-industry trade or trade in intermediate goods, large foreign investments, and low asset specificity internalize the net benefits of free trade to powerful actors, reducing the influence of net losers from liberalization. Similar arguments can be used to analyze issues such as sovereign debt, exchange rate policy, agricultural trade policy, European integration, foreign direct investment, tax policy, and migration policy.
The effect of economic interdependence on security affairs varies with market incentives. A simple starting point is that the collateral damage of war disrupts economic activity: the more vulnerable and extensive such activity, the greater the cost. A more sophisticated cost-benefit calculation would take into account the potential economic costs and benefits of war. Where monopolies, sanctions, slavery, plunder of natural resources, and other forms of coercive extraction backed by state power are cost-effective means of elite wealth accumulation-as was true for most of human history-we should expect to see a positive relationship, between transnational economic activity and war. Where, conversely, private trade and investment within complex and well-established transnational markets provide a less costly means of accumulating wealth and one that cannot be cost-effectively appropriated-as is most strikingly the case within modern multinational investment and production networks-the expansion of economic opportunities will have a pacific effect. Along with the spread of democracy and relative absence of nationalist conflict, this distinguishes the current era from the period before the
First World War, when high levels of interdependence famously failed to deter war. We see in current Western relations with China a very deliberate strategy to encourage the slow evolution of social preferences in a pacific direction by encouraging trade. Eric Gartzke has recently argued that the "democratic peace" phenomenon can largely be explained in terms of a lack of economic and other motives for war. Even among developed economies, however, circumstances may arise where governments employ coercive means to protect international markets. This may take varied forms, as occurred under nineteenth-century empires or with pressure from business for the United States to enter the First World War to defend trade with the allies.
Republican Liberalism: State Preferences Based on Systems of Domestic Representation A final source of state preferences is the structure of domestic political representation. While ideational and commercial theories stress, respectively, particular patterns of underlying societal
identities and interests related to globalization, republican liberal theory emphasizes the ways in which domestic institutions and practices aggregate and transmit such pressures, transforming them into state policy. The key variable in republican liberalism, which dates back to the theories of Kant, Wilson, and others, is the nature of domestic political representation, which helps determine whose social preferences dominate state policy—thereby defining the “national interest”.
A simple consequence is that policy tends to be biased in favor of the governing coalitions or powerful domestic groups favored by representative institutions—whether those groups are administrators (rulers, armies, or bureaucracies) or societal groups that "capture" the state. Costs and risks are passed on to others. When particular groups with outlier preferences are able to formulate policy without providing gains for society as a whole, the result is likely to be inefficient and suboptimal policy for the policy as a whole. To the extent that most individuals and groups in society tend generally to be risk averse, the broader the range of represented groups, the less likely it is that they will support indiscriminate use of policy instruments, like war or autarky, that impose large net costs or risks on society as a whole. Democracies tend to be choosy about the wars they enter: Selecting lower cost war, not provoking great-power war, and fighting to win. Republican liberal theory thereby helps to explain phenomena as diverse as the "democratic peace," modern imperialism, and international trade and monetary cooperation. Given the plausibility of the assumption that major war imposes net costs on society as a whole, it is hardly surprising that the most prominent republican liberal argument concerns the "democratic peace:' which one scholar has termed "as close as anything we have to an empirical law in international relations" –one that applies to tribal societies as well as modern states. From a liberal perspective, the theoretical interest in the "democratic peace" lies not in the greater transparency of democracies (a claim about information), the greater military power of democracies (a realist claim), or norms appropriate behavior (a constructivist claim), but the distinctive preferences of democracies.
This is not, of course, to imply that broad domestic representation necessarily generates international cooperation. In specific cases, elite preferences in multiplestates may be more convergent than popular ones. Moreover, the extent of bias inrepresentation, not democracy per se, is the theoretically critical point. There existconditions under which specific governing elites may have an incentive to representlong-term social preferences in a way that is less biased-for example, when theydampen nationalist sentiment, as may be the case in some democratizing regimes,or exclude powerful outlier special interests, as is commonly the case in trade policy.
The theoretical obverse of "democratic peace" theory is a republican liberal theory of war, which stresses risk -acceptant leaders and rent -seeking coalitions. There is substantial historical evidence that the aggressors who have provoked modern great-power wars tend either to be extremely risk-acceptant individuals, or individuals well able to insulate themselves from the costs of war, or both. Jack Snyder, for example, has refurbished Hobson's classic left-liberal analysis of imperialism-in which the military, uncompetitive foreign investors and traders, jingoistic political elites, and others who benefit from imperialism are particularly well placed to influence policy-by linking unrepresentative and extreme outcomes to log-rolling coalitions. Consistent with this analysis, the highly unrepresentative consequences of partial democratization, combined with the disruption of rapid industrialization and incomplete political socialization, suggest that democratizing states, if subject to these influences, may be particularly war-prone. This offers one answer to the paradox posed by James Fearon-namely, why rational states would ever enter into war rather than negotiate their way out.
Parallels to the "democratic peace" exist in political economy. We have seen that illiberal commercial policies-trade protection, monetary instability, and sectoral subsidization that may manifestly undermine the general welfare of the population-reflect pressure from powerful domestic groups. In part this power results from biases within representative institutions, such as the power of money in electoral systems, the absence or presence of insulated institutions. Consider the example of international trade. As we saw in the preceding section, perhaps the most widespread explanation for the persistence of illiberal commercial policies, such as protection, monetary instability, and sectoral subsidization that may manifestly undermine the general welfare of the population, is pressure from powerful domestic groups. The power of such groups is often exacerbated by biases within representative institutions. Where the latter sort of biases exist—and it is seen in most contemporary representative institutions—special interest groups are likely to gain protection through tariffs, subsidies, favorable regulation, or competitive devaluation. Where policy makers are insulated from such pressures, which may involve less democratic—such as “fast track” provisions, executive agreements, and the United States Trade Representative—open policies are more viable. Ironically, in such cases, less “democratic” institutions, in the sense of less “populist” and “participatory” institutions, may in fact be more representative of society as a whole.
The Scope of the Liberal Perspective We have seen that liberal theory is a coherent family of ideational, commercial and republican theories that share common assumptions about international relations. Such theories explain not only cooperation among liberal states, but pertain to liberal and non-liberal polities, conflictual and cooperative situations, security and political economy issues, and both individual foreign policy and aggregate behavior. Such theories challenge the conventional presumption that realism is the simplest, most encompassing and most powerful of major IR theories. Although not all liberal theories are easy to specify, hypotheses about endogenous tariff setting, the democratic peace, and nationalist conflict suggest that liberalism generates many empirical arguments as powerful and parsimonious as those of realism. At first glance, some may object that the claim that state preferences or interests matter—that is, what states want shapes what they do—is trivial. Yet in fact the liberal approach is distinctively different than other widely advocated families of theories, which stress instead the distribution of coercive power, information, cultural beliefs and other characteristics of states. Others may feel that stressing preferences may lead to an impossibly broad and vague approach, because thousands of factors might affect the social demands placed on a modern state. In practice, however, specific liberal theories turn out to be not just powerful but precise and focused as well. Fifty years ago Morgenthau launched the modern post-war field of international relations by proclaiming that international relations theory should avoid “two popular fallacies…the concern with motives…and the concern with ideological preferences.” Liberalism seeks to theorize motives, ideologies and preferences—and the empirical data shows that it has done so successfully.
Theories based on the liberal approach can explain, moreover, a number of phenomena for which realist, institutionalist, and non-rational theories of international relations approaches lack a persuasive account.
First, the liberal approach provides a plausible theoretical explanation for variationin the substantive content of foreign policy. Neither realism nor institutionalism explains the changing substantive goals and purposes over which states conflict and cooperate. Both focus instead on formal causes, such as relative power, issue density, or the distribution of information—and on formal consequences, such as conflict and cooperation per se. By contrast, liberal theories provide a plausible explanation not just for conflict and cooperation, but for the substantive content of foreign policy. Liberal IR theory offers plausible, parsimonious hypotheses to explain things like the difference between Anglo-American, Nazi, and Soviet plans for the post–World War II world; U.S. concern about a few North Korean, Iraqi, or Chinese nuclear weapons, rather than the greater arsenals held by Great Britain, Israel, and France; the substantial differences between within the Bretton Woods compromise of ‘‘embedded liberalism’’ and the period of “free trade imperialism” that preceded it, divergences between economic cooperation under the EC and NAFTA, and many other cases. Similarly, liberalism makes more sense of the sudden reversal of East–West relations, a shift made possible by the widespread view among Russian officials (so interview data reveal) that Germany was at once ethnically satisfied, politically democratic, and commercially inclined.
Second, theliberal approach offers a plausible explanation for historical change in the international system. The static quality of both realist and institutionalist theories, and their lack of persuasive explanations for fundamental long-term change in the nature of internationalpolitics, are recognized weaknesses. Global economic developmentover the past five hundred years has been closely related to greater per capitawealth, democratization, education systems that reinforce new collective identities,and greater incentives for trans-border economic transactions. Realist theory accordssuch shifts no theoretical importance, but analyzes enduring patterns of state behavior reflecting cyclical shifts in power, as in the rise and decline of great powers. Liberal theories, by contrast, forge a direct causal link between economic, political, and social modernization and state behavior in world politics. Hence, for example, it is significant to liberals that over the modern period the principles of international order have been decreasingly linked to dynastic legitimacy and increasingly to factors directly drawn from the three variants of liberalism: national self-determination and social citizenship, the increasing complexity of economic integration, and liberal democratic governance.
Third, following on from the second point, the liberal approach offers a plausible explanation for the distinctiveness of modern international politics. Among advanced industrial democracies, a stable form ofinterstate politics has emerged, grounded in reliable expectations of peaceful change,domestic rule of law, stable international institutions, and intensive societal interaction. Whereas realists offer no general explanation for the emergenceof this distinctive mode of international politics, liberal theories argue that theemergence of a large and expanding bloc of pacific, interdependent, normativelysatisfied states has been a precondition for such politics. Consider, for example, thecurrent state of Europe. Unlike realist theories, for example, liberal theories explain the near total absence of competitive alliance formation among the leading democratic powers today.
From Unicausal to Multi-Causal Theory We have seen that liberal assumptions about world politics offer a distinct foundation on which a number of powerful theories may be grounded. Yet any good historian, policy-maker or social scientist is instinctively—and rightly—suspicious of mono-causal explanations based on only a single theory. Surely world politics is more complex. What if we want to combine a liberal theory with other theories, liberal or non-liberal? Two final points are worth noting, both of which elaborate the various in which any given liberal theory can be combined with other theories.
First, variousliberal theories work well in tandem with one another. Not only does liberal theory apply across a wide domain of circumstances, but its three variants—ideational, commercial, and republican liberalism—are mutually reinforcing. They are stronger taken together than separately. Not only do they share assumptions and causal mechanisms, but their empirical implications aggregate in interesting ways. It is widely accepted, for example, that economic development has a strong influence on the viability of democratic governance, with its pacific implications; liberal democratic governments tend in turn to support commerce, which promotes economic development. Such claims can be analytically reinforcing even where they do not make parallel predictions. Anomalies within one variant of liberal theory may be resolved by considering other variants. Positive movement along one liberal dimension—patterns of national identity, democratic participation, or transnational economic transactions—may condone or exacerbate the negative distortions along another liberal dimension.
Norman Angell, whose commercial liberal claims on the eve of World War I included a prediction that war among major powers was obsolete, is often parodied by secondhand critics. Yet he does not deserve this. Angell staunchly maintained that his well-known ‘‘unprofitability of war’’ thesis in no way implies ‘‘the impossibility of war”—a doctrine he dismissed for republican liberal reasons (i.e. the fact that not all governments are representative) as a ‘‘ridiculous myth.’’ Where representative bias permits special interests to control policy, aggregate incentives for welfare-improving trade are likely to have less effect. Recent studies reveal that the correlation between economic interdependence and peace holds far more strongly among liberal states. Conversely, where democratization heightens socioeconomic inequality, nationalist cleavages, uneven patterns of gains, and losses due to interdependence or extreme heterogeneity of interests—as may have occurred in the former Yugoslavia and other democratizing nations—it may exacerbate international economic and political conflict. Such interaction effects among liberal factors offer a promising area for more detailed analysis. Liberal theories are greater than the sum of their parts.
Second, liberal theories are easily combined with other international relations theories, generating multi-causal explanations. Surely there are cases in which a combination of liberal and other theories offers a better explanation of state behavior than any single sort of theory alone, liberal or otherwise. In such cases, a multicausal synthesis is required. But an “anything goes” attitude will quickly lead to complexity. How can we discipline such a synthesis? What model should we use?
Most theorists believe we should synthesize theories by employing realism first (with preferences assumed to be invariant) and then introduce liberal theories to explain whatever is left over. The justification often given is that realist theories deal with the most “important” phenomena in international affairs, coercive threats to national security, and no state will pay attention to liberal factors until they resolve such classic Realpolitik issues. Yet such claims arbitrarily privilege realist explanations of any phenomena that might be explained by other theories—and liberal theories, as we have seen, do deal with essential matters of peace and war. Moreover, it is clear—as we have seen above—that conflict often comes about precisely because states have varied interests, and some aggressor states have privileged something above security, this violating the key assumptions of realism.
The truth is in fact the opposite: to the extent that both preferences and coercive other factors matter, liberal theories enjoy analytical priority in any synthesis. The assumption of rationality or purposive behavior central to realism (like the ‘‘bounded rationality’’ claims of institutionalism) implies action on the basis of a prior, specific, and consistent set of preferences. Unless we know what these preferences are (that is, unless we know the extent to which states value the underlying stakes), we cannot assess realist or institutionalist claims linking variation in the particular means available to states (whether coercive capabilities or institutions) on interstate conflict or cooperation. Nor can we use non-rational decision-making theory to assess whether the means-ends calculations used to realize those interests are rational or not. Preferences determine the nature and intensity of the game that states are playing and thus are a primary determinant of which systemic theory is appropriate and how it should be specified. Variation in state preferences often influences the way in which states make calculations about their strategic environment, whereas the converse—that the strategic situation leads to variation in state preferences—is inconsistent with the rationality assumption shared by all three theories. In short, liberal theories explain when and why the assumptions about state preferences underlying realism or institutionalism hold. The reverse is not the case, at least in the short term. In situations where theseassumptions do not hold, realism and institutionalism (as well as some variants ofconstructivism) are not just of limited importance, they are theoretically irrelevant.5 The priority of liberalism in multicausal models of state behavior implies, furthermore, that collective state behavior should be analyzed as a two-stage process. States first define preferences—a stage uniquely explained by liberal theories—and only then do they debate, bargain, or fight to particular agreements—a second stage explained by realist and/or institutionalist (as well as liberal) theories of strategic interaction. The two-stage model offers a general structure for research design and theoretical explanation. In those cases where liberal factors only influence strategic outcomes directly, through preferences and preference intensities (a in Figure 1), liberalism can be tested as a monocausal hypothesis against alternative realist or institutionalist factors (c in Figure 1). Liberal factors may also influence outcomes indirectly, because the nature of preferences helps determine (b in Figure 1) the relative power and influence of states. (c in Figure 1). Recall that preferences do not simply shape outcomes, they tell us which realist or institutionalist factors are important and how they relate to state behavior. In such cases, explaining (or at least controlling for) variation in state preferences is analytically prior to an analysis of strategic interaction. Without a prior analysis of preferences, only monocausal formulations of realist or institutionalist theory can be tested.
The primacy of liberal theories in such multicausal explanations may appear to be an abstract admonition, yet it is of real practical importance in interpreting historical experience and current policy.
How are we to understand, for example, Woodrow Wilson’s proposal for the League of Nations, often cited as the epitome of liberal ‘‘legalism’’ and ‘‘utopianism.’’ At first glance, Wilson’s proposal seems to reflect a naive confidence in international institutions. Yet in fact it was a two-stage liberal proposal—and a realistic one at that. From the start, Wilson was skeptical about the