Institutional Change

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In international politics generally, and international political economy specifically, several scholars contend that explaining state actions is a matter of understanding the ideas, interests and institutions surrounding any given policy area. Some theorists see these as being mutually exclusive, while others see them as co-acting. Bailey, Goldsteign and Weingast belong to the latter group, but argue that institutional change is a specifically important mechanism for explaining changes in international political economy.

The idea of institutional change is predicated on the assumption that economic policy should be understood as a series of policy equilibria with several factors working for or against any given equilibrium, depending on the relative strength of each factors, we can expect either one or another policy outcome. For example, a state's foreign economic policy falls on a continuum from protectionist to free trade. The interaction between ideas, interests and institutions result in policy that is either more or less free.

Institutionalists argue that changing an institution can change the incentives different actors face, including their interests, and in this way affect policy outcomes in one direction or another. Within this framework, institutional change can push toward one or another policy equilibrium. Interests, then, are endogenous--subject to change from within the system. Bailey, Goldstein and Weingast use this logic to explain the shift towards free trade in the US as exemplified by the passing of the RTAA in 1934. According to their logic, the institutional change ushered in by the RTAA not only explains the initial shift towards liberalized trade but also the durability of this shift. The RTAA produced two major institutional changes that made free trade easier and more likely to last. First, the RTAA transferred the power to set tariffs from Congress to the President, thus insulating trade policy and protectionist impulses from the vicissitudes of congressional voters. This act goes a long way in explaining the durability of the free trade regime. Second, in addition to transferring tariff setting power to the President, the RTAA also mandated reciprocal lowering of tariffs, which made it easier for congress to push through lower tariff rates. Moreover, the RTAA changed the congressional voting procedure on tariffs from a supermajority to a simple majority, further simplifying the process.