Why neoliberal institutionalism will prevail: an critical analysis on why

neoliberalism goes beyond neorealism

Introduction

From the formation of the discipline of international relations in the early 20th century until today, many
different and distinctive in their own way theories have emerged and fallen in terms or relevance, in an
attempt to discuss, explain, or understand the dynamics of international relations. Arguably, two wide
theoretical frameworks kick-started the discipline’s existence, them being idealism (or liberalism) and
its greatest critic, realism. From the mid-1980s, though, new theories deriving from the previous ones
gave rise to what has come to be known as the ‘neo-neo’ debate.1 In this debate, neorealism, or
structural realism, spearheaded by Kenneth Waltz and John Mearsheimer, clashed with neoliberalism,
spearheaded by Joseph Keohane and Joseph Nye, debating which theoretical framework is best at
explaining international relations.2 Through this debate, structural realists such as Mearsheimer,
discredit neoliberalism or institutionalist theory as lacking persuasiveness, while other critical theories
would just say that both traditional IR theories miss the point in explaining international relations.

Therefore, this essay will narrow down its scope on neoliberalism, or as it will be referred to throughout
the essay, institutionalist theory, and attempt to argue that it can be rather persuasive in explaining
how dynamics of international relations work. As a matter of fact, not only is it persuasive, but it can
also find common ground with structural realist theorists (William Wohlforth) when it comes to
participating in international institutions. Lastly, it will be argued that core concepts of institutionalist
theory and the resonance that they bring along will prevail, and Gramscian and Foucauldian concepts
illustrate why that is the case.

In order to achieve the above, Mearsheimer’s criticism of institutionalist theory will be stressed and
challenged through Keohane’s and Martin’s response. Afterwards, institutionalist theory will be
stressed and supported with Wohlforth’s argument that the US needs to participate in international
institutions in order to benefit. Lastly, Gramsci’s and Foucault’s concepts of hegemony and knowledge
as power respectively will be considered in conjunction with Nye’s analysis of soft power and how
important it is in the conservation of the institutionalist, or neoliberal world order.

Institutionalism and its discontents

In order to understand what institutionalist theory implies, one needs to know what it is not, something
that Mearsheimer accomplishes in his attempt to discredit institutionalist theory. Mearsheimer argues
in general that international institutions do not have substantial influence on international stability and,
like most neorealists, challenges the idea that they have an independent effect on state behaviour, but

1
Lamy, S. ‘Contemporary mainstream approaches: neo-realism and neo-liberalism’, in The globalization of
world politics: an introduction to international relations, edited by John Baylis et al (Oxford, Oxford University
Press, 2014), p. 127
2
Kurki, M., Wight, C. ‘International Relations and Social Science’, in International relations theory: discipline
and diversity, edited by Tim Dunne et al (Oxford, Oxford University Press, 2016), p. 15;
Lamy, S. ‘Contemporary mainstream approaches: neo-realism and neo-liberalism’, in The globalization of
world politics: an introduction to international relations, edited by John Baylis et al (Oxford, Oxford University
Press, 2014), pp. 126-40
rather argues that they are but a reflection of the way in which power is distributed and have but a
marginal role in the formulation of conditions in international relations.3 Additionally, the international
system is a place of constant security competition, thus setting insurmountable limits to cooperation.
Realism’s five core assumptions can illustrate the simplistic view of international relations that it holds.
The international system is anarchic, anarchic as an ordering principle, meaning that there is no world
government; states, big or small, have military capabilities and can inflict damage upon other states or
defend themselves; in order to retain their sovereignty, states will do what it takes – survival of the
state as their raison d'être – and; states are rational actors and will act strategically in their quest for
survival and security.4 All the above can be considered only as a five-fold wholeness that defines the
order of things in international relations, as a result of which three patterns of behavior can occur.
Firstly, states have a shared uncertainty concerning the intentions of other states and a generalized
anticipation of danger and, resultantly, war. Secondly, all states are primarily concerned with their
survival, which can be guaranteed only by their own actions since there is no higher authority or a world
government to do so. And thirdly, states aim to maximize their relative power as a means of maximizing
their security.5 It is pretty evident that Mearsheimer, and in extension neorealists, believe state
behavior and the nature of actors to be preconceived due to the structure of the international system,
immune to any sort of change.

Mearsheimer not only notes the underlying assumptions of neorealism, but also of institutionalist
theory (or what he calls liberal institutionalism), something that Keohane and Lisa Martin acknowledge
to some extent.6 According to Mearsheimer, institutionalism argues that states have incentives both to
cooperate and not cooperate, but that it does not deal with the case when interests between states
are absolutely conflicting. Moreover, institutionalism is mainly concerned with what it considers the
main hurdle to cooperation: cheating. The prisoner’s dilemma is instrumental in illustrating the reason
why cheating goes against state’s interest, which simply is that it would be more costly for states to not
cooperate and cheat on each other than to cooperate.7 Moreover, institutionalism is “less ambitious”,
because although it reaches alternate conclusions, it presupposes core components of realist theory,
that “states operate within an anarchic environment and behave in a self-interested manner.”8
Institutionalist theory therefore argues that rules through institutions can alter the way success is
calculated, by reducing cheating and producing cooperation.9 That is for four reasons. First, rules
institutionalize the iteration of certain values that discourage cheating, and that is done by raising the
cost of cheating, thus making the long-term fruits of cooperation preferable (“shadow of the future”);
being caught cheating will decrease the benefits from cooperation and provoke retaliation by the
victim-state, while additionally reciprocation between states will ensure that cheaters will get punished,
and; states that have a reputation of being loyal to the rules are rewarded, while rule-breaking states
suffer the consequences.10 Second, rules produce an “issue-linkage”, which deepens interdependence
between states on different levels. The result of transcendent interdependence between different
issues/areas results in the discouragement of cheating, due to the fear that cheating in one area may

3
Mearsheimer, J. ‘The false promise of international institutions’, in International Security, Vol. 19:3, 1994, p. 7
4
Ibid, p. 10
5
Ibid, p. 11
6
Keohane, R., Martin, L. ‘The Promise of Institutionalist Theory’, in International Security, Vole 20:1, 1995, p.
39
7
Mearsheimer, J. ‘The false promise of international institutions’, in International Security, Vol. 19:3, 1994, p.
17
8
Ibid, p. 17
9
Ibid, p. 18
10
Mearsheimer, J. ‘The false promise of international institutions’, in International Security, Vol. 19:3, 1994, p.
18
lead to retaliation from the victim state in another area.11 Third, iii. A structure of rules allows
for the swift sharing of information, which creates the conditions for transparency when it comes
unveiling whether a state is cheating or is about to cheat, thus allowing states to prepare themselves
against cheaters.12 And last, rules reduce the transaction costs. This means that states prescribe
negotiation authorities onto institutions, thus making it less costly and more appealing for states to
participate in such practices.13 Yet Mearsheimer does not seem convinced.

Mearsheimer argues that since institutionalists acknowledge the self-interested nature of states in an
anarchical environment, they should also acknowledge that power and balance of power (hence, a
relative to others conceptualization of power) matters to states.14 Yet, institutionalism does
acknowledge relative gains, but argues that when substantial benefits can be acquired from
cooperation with more than two states they become relatively irrelevant.15 Regardless of that,
Mearsheimer notes two problems with institutionalist thought. First off, it is impossible to maintain
that cheating is the only hurdle to cooperation, since that would apply only in the economic realm.
Once relative gains come into play, it is impossible to make this separation between military/security
and economic issues, since success in the former requires success in the latter.16 Yet, it has been argued
that institutionalist theory can be applied in both security and economic issues, while the distinction of
the two spheres is refuted by significant institutionalist scholars.17 Second, there are non-realist
theoretical frameworks that explain why relative gains matter in the realm of economics. For instance,
strategic trade theory argues that it is in one state’s interest to support its firms against rival states’
firms.18 But then again, this argumentation does not take into account the transnationalization of
capital and firms, and the emergence of multinational corporations (MNCs) that pledge allegiance to
no state, but the enhancement of profit. The most recent example of the promotion of the TTIP
negotiations evidences this, where US and EU corporations, businesses and firms formed a coalition
favoring the trade deal.19 Although this criticism is well thought and developed, it criticizes
institutionalism for things that it does not argue. Moreover, even Mearsheimer does not argue that
relative gains are insurmountable, something that institutionalists acknowledge and try to explain.20

The promise of institutionalism

Already, it should be quite evident that although daring and thoughtful, Mearsheimer’s criticism seems
not to hold and to mismatch what institutionalism actually tries to illustrate. Critiques of institutionalism
concerning the prevalence of institutions since the fall of the USSR seem to be out of touch with reality,
when institutions such as NATO, the EU and the WTO are furthered empowered with new member

11
Ibid, p. 18
12
Ibid, p. 18
13
Ibid, p. 18.
14
Ibid, p. 19
15
Keohane, R., Martin, L. ‘The Promise of Institutionalist Theory’, in International Security, Vole 20:1, 1995, pp.
43-4
16
Mearsheimer, J. ‘The false promise of international institutions’, in International Security, Vol. 19:3, 1994, p.
20
17
Keohane, R., Martin, L. ‘The Promise of Institutionalist Theory’, in International Security, Vole 20:1, 1995,
pp.43-4
18
Mearsheimer, J. ‘The false promise of international institutions’, in International Security, Vol. 19:3, 1994, p.
20
19
Young, A. ‘Not your parents' trade politics: the Transatlantic Trade and Investment Partnership negotiations’,
in Review of International Political Economy, Vol. 23:3, 2016, p. 348
20
Mearsheimer, J. ‘The false promise of international institutions’, in International Security, Vol. 19:3, 1994, p.
21
states and increased channeling of resources towards these institutions. 21 Moreover, according to
neorealism, states always pursue relative gains. But that hardy is the case when the probability of war
is low or barely considerable. Additionally, offensive neorealists such as Mearsheimer argue that all
states seek to maximize their strength to a maximum vis-à-vis other states in order to become “the
most formidable military power.”22 Yet that is not the case, as Britain did not seek to do so after the
Second World War, although it arguably had the possibility or the incentives.23 In contrast,
institutionalism argues that frameworks of interstate cooperation, shared information, and a facilitated
operation of reciprocity, will occur when there is a shared perception among governments that there
are common benefits to be acquired from the creation of such frameworks/institutions. Bust as it was
argued in the previous section of this essay, this will not be the case when states do not share such a
perception of common benefits. In this sense, institutionalism does not try to disprove neorealism, but
rather encompasses it and complements it.24 It is true, in the end, that institutionalist theory, just like
neorealism, “is utilitarian and rationalistic”.25

At this point, it would be imperative to get deeper into institutionalist theory. The anarchic order of
things in IR and the self-interested nature of states is something institutionalism and neorealism have
in common.26 Yet institutionalist theorists pay attention to two specific historic developments that have
altered the world significantly. American hegemony after the second world war in conjunction with
rapid technological advancements, and the enhanced social and economic transactions as a result of
these developments, have engendered a “world without borders.”27 This has been the result of the
emergence into prominence of multinational corporations, transnational social movement and
international organizations.28 Unlike neorealist claims, institutionalism does not rid military power of its
traditional important role in the configuration of international relations, but argues that the previous
two developments have caused the emergence of a “multidimensional economic, social and ecological
interdependence”, which military power by itself lacks the means to explain.29 To this point it should
be evident that institutionalist theory fills the gaps that neorealists have failed to theorize coherently
in relation to how power is calculated within a system of enhanced interdependence.

Moreover, the traditional and simplistic way of measuring power as purely military, where power was
simply perceived as the ability to coerce other actors, does not stand by itself anymore. In an
international system of enhanced interdependence between states, power can be also understood
within a dimension that Keohane and Nye call “sensitivity”. Sensitivity implies the amount to which a
decision in one state will cause reactions or decisions in another. Yet these actions do not have to be
made formally by states only, but by societal or economic agents, causing the adaptation of other

21
Keohane, R., Martin, L. ‘The Promise of Institutionalist Theory’, in International Security, Vole 20:1, 1995, p.
40;
Capling, A., Trommer, S. ‘Global Trade and Production’, in Global Political Economy, edited by John Ravenhill
(Oxford, Oxford University Press, 2017), p. 119-127
22
Keohane, R., Martin, L. ‘The Promise of Institutionalist Theory’, in International Security, Vole 20:1, 1995, p.
41
23
Ibid, p. 41
24
Ibid, p. 42
25
Ibid, p. 40
26
Sterling-Folker, J. ‘Neoliberalism’, in International Relations Theories: discipline and diversity, edited by Tim
Dunne et al (Oxford, Oxford University Press, 2016), p. 90
27
Sterling-Folker, J. ‘Neoliberalism’, in International Relations Theories: discipline and diversity, edited by Tim
Dunne et al (Oxford, Oxford University Press, 2016), p. 91;
Keohane, R., Nye, J. Power and Interdependence (Harvard, Harper Collins Publishers, 1989), p. 3
28
Keohane, R., Nye, J. Power and Interdependence (Harvard, Harper Collins Publishers, 1989), p. 3
29
Ibid, p. 4
agents within other states to the former’s actions. In any case, the point here is that the measurement
of power in absolute terms is absurd, since it is so diffused through different factors and agents, be it
MNCs, NGOs, international organizations and others.30 This certainly is the case in the attempts to
liberalize trade relations between the US and the EU, as it was previously argued.31 Yet many other
cases exist of NGOs shaming governments into action by formulating popular perceptions in favor of
their cause.

Institutionalists do not refute the main realist assumptions, but challenge realist ideas that states as
coherent units are the predominant actors in international relations, that force is a “usable and
effective instrument of policy”, and finally that there is an assumed hierarchical categorization of issues
into “high” and “low-politics”, the former implying brute military power, while the latter economic and
environmental issues.32

These ideas are challenged through three main characteristics of interdependence. First off, “multiple
channels connect societies, including: informal ties between governmental elites as well as formal
foreign office arrangements; informal ties among non-governmental elites; and transnational
organizations.”33 The multiplicity of channels between agents shows the sterility of the realist
assumption that only interstate relations exist between coherent states, and that there is a
transnational quality to the relations between actors who are not uniquely governmental. Second, the
conception of the agenda of interstate relationships is not hierarchical and has a quality of multiplicity.
Issues are considered on multiple levels with different factors from both domestic and foreign policy,
and a decision in one policy area can have effects on other, thus blurring any possible hierarchy
structure in the policymaking process. Lastly, military force, although still relevant and usable in
extreme and desperate cases when no other solution seems viable, hardly ever is used among highly
interdependent states. Therefore, military power is irrelevant between states in terms of economic
relations within an alliance, yet it would be relevant in relation to a rival state, say, China or North
Korea.34 Therefore, institutionalist theory is a deeply rationalist approach in IR that does not refute
neorealist claims, but takes them further and sets neorealism free from its oversimplification of
international relations.

William Wohlforth’s argumentation that the US should engage with institutions is instrumental in
understanding the common ground that neorealism and institutionalist theory cover. According to
Wohlforth, “the US has and will likely continue to seek to adapt institutions and rules to suit its interests,
but generally does so in ways that are hard to observe and assess.”35 Moreover, the US should
reconfigure the institutions’ functions in order to enhance their efficiency and legitimacy. This should
not be done through the reform of the locked-in distribution of power within institutions (because
precisely the lock-in setting favors US primacy), such as the UNSC, but through the secretariats, sub-
organizations and other organizations such as the WB, IMF and WTO, which has been the case since
the creation of the Bretton Woods system until today with the Washington Consensus and Post
Washington Consensus policy re-adaptations.36 Most importantly, the withdrawal of the US from

30
Keohane, R., Nye, J. Power and Interdependence (Harvard, Harper Collins Publishers, 1989), pp. 11-9
31
Young, A. ‘Not your parents' trade politics: the Transatlantic Trade and Investment Partnership negotiations’,
in Review of International Political Economy, Vol. 23:3, 2016, p. 348
32
Keohane, R., Nye, J. Power and Interdependence (Harvard, Harper Collins Publishers, 1989), pp. 23-4
33
Ibid, p. 24
34
For all the ponts above: ibid, pp. 24-5
35
Wohlforth, W. ‘US leadership and the limits of international institutional change’, in International Journal,
Vol. 67:2, 2012, p. 415
36
Wohlforth, W. ‘US leadership and the limits of international institutional change’, in International Journal,
Vol. 67:2, 2012, pp. 418-9;
institutions would be delegitimizing of its hegemony and influence. Therefore, self-interest can be
served through institutions and although institutions are initiated by states, they end up becoming
forums of influence projection and hegemonic cooperation through the networks they create.

Gramsci, Foucault and Soft Power

Two different perspectives may be useful in shedding light on what Wohlforth calls “hard to observe”
ways in which the US serves its self-interest through international institutions. Gramsci writes of the
popular common sense, which is the set of beliefs “drawn from historical reservoirs of social meanings”
that form society by triggering social action.37 These beliefs are far from concrete and specific, but
rather a jigsaw of values, religious and folklore concepts and political, philosophic or scientific doctrines
which can be interpreted in different ways for visions and projects aimed at the formulation of an ideal
society. This is where Gramsci develops another concept, that of hegemony, social, cultural, ideational.
A hegemonic system of beliefs takes place when the ruling classes or elites make use of the popular
common sense in order to reproduce and secure the status quo which they favor. It could be argued
that Gramsci shows how the elites reproduce their ideational dominance through the function of
international institutions and transnational organizations.38 Additionally, Foucault’s notion of power
could take us further in understanding Gramsci’s notion of hegemony. Power is decentralized and
operates through institutions or state apparatuses, “a society-wide network of productive power
relations that depend on the operation of ever-more specialized forms of knowledge,”39 or in Foucault’s
words, there is a set of “procedures that allow the effects of power to circulate… throughout the entire
social body.”40

Both Gramsci and Foucault describe an economy of power that is not coercive or direct, but rather
indirect, diffused through institutions and reproductive of a specific set of values and the hegemonic
rule they seek to maintain. Arguably, these are the hidden mechanics of Joseph Nye’s Soft Power. Nye
argues that soft power is not only about the ability to influence, but rather the ability to set agendas,
be attractive and exemplary, or what could otherwise be called co-optive power in contrast to
command power, which is associated with hard power. Co-optive power as the ability to shape what
others want is expressed through institutions and the values, culture and policies that they promote. 41
Therefore, soft power is “the second face of power,”42 which is something Foucault talks extensively

Aggarwal, V., Dupont, C. ‘Cooperation and conflict in the global political economy’, in Global Political Economy,
edited by John Ravenhill (Oxford, Oxford University Press, 2017), pp. 52-75;
Capling, A., Trommer, S. ‘Global Trade and Production’, in Global Political Economy, edited by John Ravenhill
(Oxford, Oxford University Press, 2017), pp. 109-39;
Helleiner, E. ‘The evolution of the international monetary and financial system’, in Global Political Economy,
edited by John Ravenhill (Oxford, Oxford University Press, 2017), pp. 197-224
37
Rupert, M. ‘Antonio Gramsci’, in Critical Theorists and International Relations, edited by Jenny Edkins et al
(London, Routledge, 2009), p. 183
38
Rupert, M. ‘Antonio Gramsci’, in Critical Theorists and International Relations, edited by Jenny Edkins et al
(London, Routledge, 2009), p. 183;
Rupert, M. ‘Marxism’, in International Relations Theories: discipline and diversity, edited by Tim Dunne et al
(Oxford, Oxford University Press, 2016), p. 135
Smith, G. Antonio Gramsci: selections from the notebooks (London, Lawrence & Wishart Limited, 1998), p. 245-
6
39
Neal, A. ‘Michel Foucault’ in Critical Theorists and International Relation, edited by Jenny Edkins et al.
(London, Routledge, 2009), p. 163
40
Foucault, M. ‘Truth and Power’ in Power: essential works of Foucault 1954-1984 volume 3, edited by James
S. Faubion (London, Penguin, 2002), p. 120
41
Nye, J. Soft Power (New York, Public Affairs, 2004), pp. 7-8
42
Ibid, p. 5
about in his own terms.43 Consequently, critical theorists help explain a side of institutions that
institutionalist theorists grasp in a much more subtle and ideal way.

Conclusion

This essay has attempted to show that neorealist criticism of institutionalist theory way too often
mismatches what institutionalists argue. Moreover, institutionalist theorists do not disagree with
neorealists on the constitutive elements of the international system, but update and explain it more
fully when it comes to greater interdependence between states which is spearheaded by both states
and non-state or transnational actors. As a matter of fact, both neorealists (Wohlforth) and
institutionalist theorists stand by the significant role that institutions have to play in the formulation of
the international system, the distribution of power, the enhancement of cooperation and the
promotion of agendas and norms. This, although led by the US as a hegemon, is done in a multilateral
and consensus-building fashion. Instrumental in this task is what is known as soft power. Although Nye
explains ideally what soft power constitutes, Gramsci’s and Foucault’s notions of ideational hegemony
and knowledge/truth production as a form of decentralized power are much more useful in explaining
how institutions work. Not only do they analyze institutions’ modus operandi, but also show why there
is no alternative to neoliberalism and institutionalist theory, simply because they are in a power position
in control of the social and transnational institutions that perpetuate themselves ideationally. In
conclusion, not only is institutionalist theory persuasive in explaining the dynamics of IR, but the system
it describes is also ‘condemned’ to perpetuate itself, as long as its hegemon, the US, understands the
legitimizing and norm-setting ability of institutions and commits to their operation.

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