Response to Transnational Regulatory Networks and Their Limits

It’s a pleasure to be able to comment on Pierre-Hugues Verdier’s excellent, if critical, article on networks. I respond as a defender: in my view, networks have notched some impressive achievements, and at their best, have become primary vehicles of international governance. From bank capital adequacy to mutual recognition on drug regulation to accounting standards, their list of achievements is, in my view, long.

Pierre disagrees. His claim, at bottom, is this: networks are basically ignorable, and because of this, they are frequently ineffective. They are ignorable because they cannot force their constituents to act in unpalatable ways, because of their informality, independence, and inability to distribute benefits and burdens across a variety of issue areas.

Pierre thus challenges networks on what, I think, their defenders have often argued are their signal advantage: we claim networks can offer meaningful international governance, often where treaties and courts cannot. His argument is powerful, and his article is a stimulating and elegant read, but, in the end, I do not think that we should reject the network form wholesale. I would defend networks by taking their measure comparatively, rather than on some absolute scale, by disputing the advantage of the formal or politicized grand bargain over the network, and by defending the value of institutions that succeed in resolving coordination games.

First: if networks fail, do they fail more or less often than other international institutions? Pierre proves his effectiveness point with case studies, and case studies can only tell part of the story. The Basel Committee enjoyed compliance early, he acknowledges, but late in its life the United States began to become recalcitrant, leading to a reformulation of the committee’s capital accords that promised to benefit American, and possibly European, banks more than any other. I’d emphasize the early achievements more than the later disagreements, but I’d also be inclined to ask about the other networks out there, of human rights lawyers doing more, perhaps, than the ICC to create global criminal law standards. And just as treaties are sometimes observed in the breach, and international custom ignored, networks may not enjoy perfect compliance at all times. IOSCO is an example of coordination that appears to have stopped at coordination of enforcement, in Pierre’s account, and I would largely agree. But holding networks to a perfect compliance standard is holding them to an unrealistic one.

Second, what’s so great about grand bargains? The legal institutions that, at least purportedly, are most encompassing are institutions regularly faced with intimations of desuetude. The United Nations, the International Court of Justice, the Law of the Sea Convention – all of these have signed up the many, and have lumbered along, ossified and frequently inactive because of it (the WTO is an exception). Networks offer less grand bargains – but that may be an advantage more than a problem, as I suggest below.

Third, what’s wrong with coordination? Many legal relationships are coordinative, in that both or all of the parties that participate in the relationship expect to benefit from it. Mutual benefit is the reason to enter any contract, but mutual benefit does not mean that contracts are failed legal instruments. Nor, as far as I know, do economists view specialist firms – firms that only produce one good, say – as less able to participate in contract than conglomerates that can trade wins in some contracts for losses in others. Specialized regulatory networks do coordinate, it is true, and they are not well-suited to trade, say, European antitrust standards for American accounting standards. But this does not mean that they cannot contribute coordination – indeed, their specialized expertise may mean that they are able to see coordination more easily than could, say, the UN, or diplomats at a US-EU summit.

Finally, for what it is worth, I think that few of the scholars who have written positively about networks are abject triumphalists. Anne-Marie Slaughter has said that networks will not replace states. Kal Raustiala has written about how networks can complement treaties, rather than replace them. I have written that networks may play the role of rulemakers in global administrative law, while other institutions will play the role of adjudicators. Indeed the only theorist who I associate with the networks-uber-alles position is David Mitrany, who wrote about the vast potential of technical coordination in the context of the failures of the League of Nations, and did so very long ago.

Network theorists should not champion their pet institution unreflectively, of course. Networks do not always work, and they do not work when we would most like them to work. The current financial crisis, for example, has unfolded with almost no international response by the Basel Committee and other economic regulators deemed to be the best, and probably the oldest and most established networks. Basel’s relative silence, IOSCO’s anodyne speeches and promises to study the matter further, and the lack of any serious response by the Financial Stability Forum, the putative network of financial regulatory networks, suggests that there are some things networks cannot do. And the primary role played by the G20 – really, a modern day Concert of Europe – in developing and coordinating what international regulatory response we have seen should give anyone pause about the primacy of law or law-like institutions in a world where political actors will continue to play a critical role.

But in the end, the problems of the network form means that perhaps it only deserves two cheers, rather than three. Pierre, I suspect, would give the network rather fewer kudos, and it is in this difference, partly of degree and partly of kind, where we ultimately disagree.