Benjamin Cohen on the problems of International Monetary Cooperation
This page is an attempt to summarize Benjamin Cohen's essay entitled "The Triad and the Unholy Trinity: Problems of International Monetary Cooperation."
Cohen starts with a very simple fact: "international monetary cooperation {...} is a good thing but difficult to sustain." [1] For him, the reason for this difficulty lies in the incompatibility of the three key desiderata of government, namely the exchange-rate stability, the capital mobility and the national policy autonomy. Clearly, he asserts that this "Unholy Trinity" is responsible for the shirking of states vis-à-vis their collective commitments to monetary cooperation.
1. The Case for Policy Cooperation:
After briefly presenting his thesis, he first defines cooperation as "a mutual adjustment of national-policy behaviour in a particular issue-area, achieved through an implicit or explicit process of inter-state bargaining."[2]Synonyms include such words as "coordination", "joint" and "collective decision-making." He then goes on and underlines the undeniable evidence that there is "an intensified interdependence across much of the world economy" [3] which then leads to "spillover effects", or foreign repercussions. Those externalities show a lessened insulation that can keep a given state from achieving its macroeconomics objectives. The existence of those spillover effects means that each government has partial control over the actions of others.
The study of cooperation is thus a very important aspect of IPE scholarship nowadays. Cohen further writes that policy coordination may be used to pursue at least two sets of goals, both derived from structural and policy interdependence.
a) policy-optimising, where cooperation is a means to achieve individual policy.
b) regime-preserving or public-goods, where states cooperate to pursue broader collective goals.
But he then lists five major issues related to policy coordination (=cooperation) that have been raised by many analysts:
1) Magnitude of gains --> small externalities for foreign states means small benefits from cooperation.
2) Magnitude of costs --> marginal cost of efforts and time needed to organize policy cooperation exceeds the marginal benefit of coordination itself. Although Cohen acknowledges that creating an explicit framework (=set of rules) for cooperation could minimize this cost, according to him, the loss of states's autonomy that would result from the adoption of this framework would lessen states's incentives to embrace it.
3) Time-inconsistency --> risk of unilateral defection since enforcement mechanisms are too weak to prevent a state from violating agreements. He also notes that, according to many specialists, the risk of defection isn't paramount because of the importance of additional factors such as reputation, credibility, and historical and institutional context.
4) Distortion of incentives --> international cooperation could be counterproductive if the wrong policies are implemented (i.e. policies more politically convenient than economically sound).
5) Model Uncertainty --> policy-makers are dense and don't understand how their economies operate and interact. There is therefore a real chance that politicians will make the wrong decisions.
Yet, most analysts, Cohen included, still view policy coordination as an inherently good thing because none of the above-mentioned problems seem overly dangerous to the welfare of states.
2. The Ebb and Flow of Policy Commitments:
Although cheating is not unexpected from an isolated state, Cohen stresses the importance of the collective (=most states) commitment, which must be enduring if one wants to make sense of it. However, he observes that "the history of international monetary cooperation is one long lesson in the fickleness of policy fashion."[4] He uses as example the G-7 summits that are for him nothing but a façade to hide a tendency to shirk quite widespread among states.
Yet, despite this negative account, Ben Cohen admits that, far from being without redeeming social value, the effort put towards the multilateral surveillance process "has on balance been beneficial, both in terms of what has in fact been accomplished and in terms of what has been avoided.[5] In brief, cooperation policies have had two main benefits:
1) Policy-makers have become more aware of the foreign externalities engendered by their domestic actions.
2) The structures meant to serve policy cooperation, although virtually useless at times, were ready to be used in times of crisis (e.g. the rising wave of U.S. protectionism in 1985 and the stock market crash of 1987).
