1. Theoretical framework____________________________________________ 35
1.2 Institutions: The relevance of the government bureaucracies
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Thus Anderson and Hayami explain why a country would impose protectionist barriers on agriculture. And this is highly applicable to the case of Taiwan, in order to understand how its political economy for agricultural trade developed throughout its growth process in the 20th century. However, the goal of this research is to understand why these protectionist policies have been lifted gradually and selectively.
The process of liberalization has been researched from many theoretical perspectives, and four arguments tend to dominate the scholarship: (1) Crisis have forced countries to reform and liberalize (Stallings & Kaufmann, 1989) (Drazen & Easterly, 2001); (2) ideas influencing policy (neoliberal or protectionist) make their way into policy processes (Sikkink, 1997); (3) pressures from IOs and countries interested in market access and private players (Kahler, 1986) (Haggard & Kaufman, 1992); and (4) regime type (particularly democratization) represents a push for free trade (Milner & Kubota, 2005). Therefore, arguments involve ideas, institutions and interests in order to explain changes in policy. For the case of Taiwan’s agricultural trade policy liberalization/protectionism, this research will strive for a comprehensive understanding of the phenomena, taking two of the existing arguments that are considered part of the explanation (pressures from IOs and countries, as well as ideas influencing policy), which can be understood from the theories of historical institutionalism and rational choice. However, another argument towards this selective/gradual liberalization can be found by analysing the historical structure of the bureaucracies involved in the policy process: There is a path dependence that is historically conditioned.
To better differentiate the analysis, the theoretical framework will be divided in three parts. The first one will establish the domestic institutions’ rationales that influence foreign economic policy. The second one will establish the bilateral interactions’ rationales influencing foreign economic policy (international pressures and the ability of players to join policy feedback loops). The third one gives credit to the role of ideas, whether they are institutionalized in Taiwan’s governments, or whether they are being used by powerful actors to satisfy their needs. Based on this theoretical framework, propositions were drafted to either support or not support the theories, and thus understand the sources of Taiwan’s agricultural trade policy.
1.2 Institutions: The relevance of the government bureaucracies
The theory presented by Anderson and Hayami will serve as a basis for the theoretical analysis of this research, since it gives (and proves empirically) a valid rationale for the
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establishment of protectionism in East Asia. However, in order to understand policy preferences, this theory will need to dig deeper to understand the domestic-foreign linkage.
One of the most important scholars in the IPE field, Peter Katzenstein, once said that international political economy remains unintelligible without a systematic analysis of domestic structure (1978). With the basis of Anderson and Hayami’s model, the theoretical framework of this research will be based on the field of IPE, where the development of theory that bridges the domestic and the international affairs has progressed enormously since Katzenstein’s publication of Between Power and Plenty in 1978. The concept of
“second image” of international relations developed by Kenneth Waltz in 1959, in his classic Man, the State and War, was taken up by Peter Katzenstein in order to develop a domestic level of analysis in the field of IPE; Waltz’s second image had to be synthesized with his third image [the international level] for the picture to be complete. “As was true of military policy in the previous era of “national security”, in the present era of “international interdependence”, strategies of foreign economic policy depend on the interplay of domestic and international forces” (Katzenstein, 1978, p. 4). Therefore this following section will look at historical institutionalism and rational choice theories as they explain the domestic sources of foreign policy.
For historical institutionalism the domestic sources of foreign economic policy start from the link between the society and the state; therefore, the theory starts from the fact that the state and the society are linked in a historically conditioned manner, and it is that link which determines the form that capitalism takes in every country. “The connection between the state and society also runs the opposite way. Public policy can shape private preference”
(Katzenstein, 1978, p. 18). This is particularly what happens in the statist interpretation of foreign economic policy and it is a highly relevant point for the case of Taiwan. It is important to understand that these two interrelationships between the state and society are in reality always mixed, and one co-exists with the other generating mutual influences and interactions.
“The governing coalitions of social forces (…) find their institutional expression in distinct policy networks which link the public and the private sector in the implementation of foreign economic policy” (Katzenstein, 1978, p. 19). When Katzenstein speaks of the governing coalition, he is referring to the interplay between the major groups of actors towards the definition of policies. In this regard, it is important to consider that the current research takes state bureaucracies and politicians as receivers of aggregate preferences from the private sector, and therefore it is through them that interests are expressed, and policy determined and executed. Katzenstein also establishes that this coalition will respond differently in each country when faced with the same problem. And the explanation towards these differences,
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he argues, lies on historically conditioned components that mark each of them. To arrive at such a conclusion, he carries out case-study based comparative analysis of different developed states’ foreign economic policies. “State power is stronger in some countries, such as Japan or France, than in others; it varies according to whether one analyses the definition of objectives or the implementation of foreign economic policy” (Katzenstein, 1978, p. 20). Therefore, domestic structures will determine variations on trade policy based on the historical development of state bureaucracies.
These variations are evident on Stephen Krasner’s analysis of diminished protectionism in the United States (Krasner, 1978). The author studies the movement of policymaking capabilities relative to trade from Congress to the White House and the State Department, who have a more liberal inclination and are not hostages to pressure groups. This situation favoured a trade regime which was more liberal for broad political reasons, leaving behind the narrower domestic concerns upheld by congress representatives. Krasner’s empirical analysis when compared to other developed states, serves as a focal point towards the understanding of the influence of domestic institutions in the making of foreign economic policy.
The missing link (i.e. the causal explanation) is provided by Katzenstein under the concept of historical determination. The concluding chapter of the book he edited, Between Power and Plenty, brings the explanatory power to this topic. The author starts by classifying the countries under comparative analysis (seven developed economies from North America, Europe and Asia) in three broad categories: Anglo-Saxons, mercantilist Japan and the European continental states. And he adds that between them, “corresponding differences exist in the distinctive elements of domestic structure: The coalition between business and the state and the policy networks linking public and private sectors” (Katzenstein, 1978, p.
295). These differences between them respond best to a historical explanation, and represent the source of trade policy. In the case of Taiwan, a parallel system of governance is easy to pinpoint, as industrial liberalization has proceeded swiftly, while agriculture remains a hostage to protectionist pressures. This parallel system is understood best as a by-product of policy institutionalization and path dependence (Heron, 2012). In the agricultural sector in particular, Moyer and Josling have argued that agricultural policy has proven to be highly path dependent, as it takes a crisis –or an exogenous shock- to produce non-incremental changes in policy (Moyer & Josling, 2002).
To understand the causality towards the selection of policy tools and objectives, the ruling coalition will be influenced by the ideological outlook and its material interests. “Such coalitions combine elements of the dominant social classes with political power-brokers
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finding their institutional expression in the party system and in a variety of institutions”
(Katzenstein, 1978, p. 308). The character of the governing coalition will shape the objectives and instruments of foreign economic policy. It becomes necessary to distinguish the level of differentiation between state and society in the state being analysed. Katzenstein concludes that in Japan, this level of differentiation is minimum, and therefore the role of the state is fundamental, as society and state act together. On sharp contrast, the level of differentiation is high on Britain, and therefore pressure groups need to be paid more attention. In following this argument, other scholars have used the terms “strong state” in order to define states with low differentiation –and therefore increased action capabilities- and “weak states” to define those that have fragmented and dispersed institutions, and are therefore prone to influence by societal pressures. In the words of Friman (1990) Japan is characterized as having a centralized structure, and it therefore possesses the means and institutions to alter its trade policy through adjustment strategies and limited protection. The United States, on the other hand, is weaker and decentralized, therefore lacks the means to follow Japan’s statist strategy.
Whether this differentiation is high or low in Taiwan will condition the analytical basis chosen for this research in order to analyse only bureaucratic institutions (as they represent aggregate interests) and not pressure groups. If the differentiation is low, the analytical decision will be the right one. If the differentiation is on the other hand high, the research will be missing an important step. There are several studies that prove empirically that Taiwan’s level of differentiation is low, with a high degree of internal coherence, and autonomy in decision making (Pang, 1992) (Gold, 1986) (Barret, 1980) (Baldwin, Chen, & Nelson, 1995), particularly in agriculture where the land reform of the 1950s eliminated a landlord class which never recovered, granting the state bureaucracy the tools for governmental penetration in the rural sector, mostly through the control of Farmer’s Associations.
“Since the clash of political strategies in the international economy is attributable to different domestic structures, it is worthwhile to examine the foundations of these structures in greater detail. These foundations are historical” (Katzenstein, 1978, p. 323). In that sense, the international political economy of every country will reflect, rather than reshape, these domestic structures. And these structures will depend heavily on the geographic and the chronological dimensions of the country under analysis. Under this theory, a large difference is expected between early and late industrializers. Early industrializers experienced an early commercialization of agriculture, while late industrializers (like Japan and Taiwan), with executive forms of government, have presented a late commercialization of agriculture.
Other features that characterize late industrializers are explosive economic growth, high industrial concentration, numerous restrictions on competition (since every industry
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developed would be infant compared to foreign competitors, and thus in need of protection), and large-scale enterprises. These characteristics will require large amounts of capital for economic development, and thus they will put banks at the centre of the machine.
Katzenstein establishes that late industrializers give a central role to the firm, investment banks, and state bureaucracy.
Among late industrializers, bureaucracies played an intense role in the growth and development of the economy, focused more on bureaucratic penetration than on political participation; established a narrow top-down approach rather than a bottom-up approach.
Several other characteristics can be used to describe these ideal types, and they become useful in understanding the domestic sources of foreign policy. Goldstein supports Katzenstein in using historical institutionalism, strengthening the argument by establishing that institutions invariably outlive the constellation of interests that created them, and hence they provide barriers to market-driven policy change (Goldstein, 1993). Therefore, in order to understand the policy objectives and chosen instruments that Taiwan applies in its meat markets, it becomes fundamental to understand the historical development of the relationship between the state and the society, the chronological development of Taiwan’s industrialization, and furthermore the actions that the selected bureaucratic institutions and politicians have taken in the past towards the promotion or protection of agriculture. This historically determined analysis represents the first source of information towards the understanding of the selective protectionist/liberal policies in Taiwan’s meat market from a domestic level of analysis. The theory will place Taiwan as a late industrializer, and therefore the abovementioned framework is applicable.
T.J. Pempel uses Katzenstein’s framework to analyse Japan’s foreign economic policy (Pempel, 1978). Pempel considers that Japan has a large level of autonomy in the decision-making process of foreign economic policy, due to the corporatist coalition that makes the state and the private sector work together. This level of autonomy does not mean that there are no international pressures, but rather that the response depends highly on domestic institutions, and not solely on international stimuli. “Assessing the relative significance of domestic and international forces demands a sensitivity to the nature of different issues, even within narrow categorizations of foreign economic policy” (Pempel, 1978, p. 141). He argues that Japan, due to its position on the international system (a geographically complex geopolitical area; lacking an army; isolated from industrial markets; with limited natural endowments; with a strategic dependence on the US; and a country that is heavily involved in multilateral organizations) should have been highly vulnerable to international pressures.
In evaluating Japan’s foreign economic policy however, this is not the case.
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Pempel then turns his look to the domestic structures. He goes on to argue that “though it is traditional in political analysis to distinguish among state, society and the structural linkages between them, it would be a mistake in analysing Japanese politics to presume too sharp a distinction among the three” (Pempel, 1978, p. 145). Based on that, he argues that Japanese foreign economic policy has been consistent and long-term, without major interruptions; there is a clear process of path dependence and internal coherence. The bureaucracy does not go against political interests, since both work hand-in-hand, thus garnering government’s strength in this issue area. As Pempel points out, the state has been able to determine what can enter and what can leave Japan, and under which conditions. In this sense, he takes the economy as one tool of government in order to achieve further goals: For the case of Japan, FDI and war-time reparations were linked to secure access to vital raw materials, and insuring the success of its exports. Therefore, a strong governmental structure and institutions will be able to increase its policy alternatives and strategies (objectives and instruments), while a government with a high level of differentiation will be caught up by domestic interests, thus unable to act freely upon its foreign economic policy, and limited in its ability to strategize. The concept of state autonomy is important, as it reflects a condition in which the state may formulate and pursue goals that are not merely reflective of outside pressures, but of inside preference.
Historical institutionalism argues that the ability of the government to achieve trade-offs and issue linkages by using trade policy is high in states with a low level of differentiation, and low in governments with a high level of differentiation. Taiwan’s government (and its sub-units) are therefore expected to have this freedom and develop a functional trade policy, which allows them to connect broader policy goals to the tools available in trade policy, and SPS issues in particular. Thus agricultural trade policy cannot be understood as a separate entity within foreign economic policy, but rather as part of a larger picture composed by a broad understanding of foreign policy, where issue-linkage will be abundant and conforming to the interests of the different sub-units involved in any given decision, and based on a historical state structure. “The results of actions made by individuals are also influenced by various structural and institutional factors that comprise more than what the individual can calculate or control” (Saner, 2010).
As a rival explanation, this theoretical framework will also consider elements of rational choice theory of IPE, in order to understand agents as profit maximizers in their decision making process. Helen Milner’s work argues that “a country’s international position exerts an important impact on its internal politics and economics. Conversely, its domestic situation shapes its behaviour in foreign relations” (Milner, 1997, p. 3). It must be said that it is not the goal of this research to dig into game-theoretical models, so while this theory could be useful
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to look at the topic of Taiwan’s meat markets, this research will look for a different approach.
And Milner’s work is relevant precisely because it takes the idea behind the two level games (that political leaders are constantly playing simultaneously in the domestic and international arena), and develops it further taking decision-makers as agents, rather than states, and putting domestic politics in the centre. This perspective will put power at the centre of a potential explanation in the sense that the self-interested goals of powerful actors will have a pre-eminence over the interests of other actors. Thus the reason behind a partial protectionist policy would not be state autonomy and policy coordination, but the decisions taken by the most relevant actors in order to satisfy their interests.
Milner starts from the assumption that states are not unitary actors, and the chances that states cooperate internationally will depend on the preferences of the agents involved. The basic assumption of rational choice theory is that agents will seek utility-maximization under conditions of constraint. Why these agents would choose to cooperate will depend on two factors: the degree of the nation’s economic openness (measured as a ratio of import-export to GDP) and the type of externalities that its policies generate. A higher degree of economic openness generates larger externalities7 when it comes to trade and industrial policies.
Milner argues that when it comes to trade policy, policy makers will be tempted to use this tool, as it is a positive function of the home country’s trade policy, and a negative function of the foreign country’s trade policy, but the “home benefits of protection and subsidization may be powerful especially in an open economy” (Milner, 1997, p. 55). Therefore, using trade policy for domestic purposes has a high return when it comes to utility maximization of political power. Under rational choice, trade policy becomes an easy hostage in the hands of policy makers, and they would not want to give it up.
It is important to keep in mind that different groups within the government will have different policy preferences. “Any change in policies, as might occur because of international cooperation, has domestic distributional and electoral consequences” (Milner, 1997, p.
16). This means that the different agents will differ in their policy preferences towards cooperation, or for the sake of this research towards liberalization. She argues that both the probability and the terms of any cooperative deal between countries will be affected by the
16). This means that the different agents will differ in their policy preferences towards cooperation, or for the sake of this research towards liberalization. She argues that both the probability and the terms of any cooperative deal between countries will be affected by the