Negotiating the World Economy 9781501732058

Citation preview

NEGOTIATING THE WORLD ECONOMY

Written under the auspices of the Center for International Studies, University of Southern California

A volume in the series

CoRNELL STUDIES IN PoLITICAL EcoNOMY

edited by Peter J. Katzenstein

A full list of titles in the series appears at the end of the book.

NEGOTIATING THE

WORLD ECONOMY JOHNS.

CORNELL UNIVERSITY PRESS

ODELL

ITHACA AND LONDON

Copyright© 2000 by Cornell University All rights reserved. Except for brief quotations in a review. this book, or parts thereof, must not be reproduced in any form without permission in writing from the publisher. For information, address Cornell University Press, Sage House, 512 East State Street, Ithaca, New York 14850. First published 2000 by Cornell University Press First printing, Cornell Paperbacks, 2000 Printed in the United States of America Library of Congress Cataloging-in-Publication Data Odell, JohnS., 1945Negotiating the world economy I JohnS. Odell. p. em.- (Cornell studies in political economy) Includes bibliographical references and index. ISBN 0-8014-3743-1 (cloth)- ISBN 0-8014-8646-7 (pbk.) 1. Intemational economic relations. 2. Negotiation in business. 3. Commercial treaties. I. Title. ll. Series. HF1359.03 2000 341.7'5026--dc21 99-055906 Cornell University Press strives to use environmentally responsible suppliers and materials to the fullest extent possible in the publishing of its books. Such materials include vegetable-based, lowVOC inks and acid-free papers that are recycled, totally chlorine-free, or partly composed of nonwood fibers. Books that bear the logo of the FSC (Forest Stewardship Council) use paper taken from forests that have been inspected and certified as meeting the highest standards for environmental and social responsibility. For further information, visit our website at www.cornellpress.cornell.edu. Cloth printing 10 9 8 7 6 5 4 3 2 1 Paperback printing 10 9 8 7 6 5 4 3 2

To my parents Earl Todd Odell and Jeraldine Busby Odell

Contents

List of Figures and Tables Acknowledgments

ix xi

1

Introduction PART ONE. ELEMENTS OF ECONOMIC NEGOTIATION

1. Purposes and Present Knowledge

2. Strategies and Outcomes 3. Market Conditions

9 24 47

PART Two. Two PARTIES WITH FIXED INSTITUTIONS

4. 5. 6. 7.

Beliefs about Feasibility and Strategy Choice Biases, Compensatory Tactics, and Outcomes Internal Politics and Outcomes Mixed Strategies and Outcomes

73 88

109 136

PART THREE. AN EXTENSION

8. Changing Domestic Institutions and Ratifying Regime Agreements with Barry Eichengreen

159

PART FOUR. IMPLICATIONS

9. Improving Knowledge 10. Improving Negotiations Appendix A: Partly Subjective Theory Appendix B: Operational Definitions of Negotiating Strategies References Index

183 204 223 224 227 245

Figures and Tables

Figures 1. Resistance Points and the Zone of Agreement 2. The Possibility Frontier and the Zone of Agreement 3. Agreement near the Frontier 4. High Russian Resistance Point 5. The Outcome Distributes the Gain 6. Outcomes Scatter Widely and Many Are Inefficient 7. Negotiation Process Variables 8. Creating Value on Layoffs 9. Soluble Coffee Trade, 1966-71 10. Beef Trade, 1988

26 29 30 31

40 41

46 139

144 154

Tables 1. World Exports and Imports of Coffee by Country, 1962 2. Multiparty Negotiations, Issues, and Context

51 198

I

I

I I I

I I

I I

I I I

I

I I I I I I I I

I

I I I

I I

I I

I I I

I

I I I I I I I I

I

I I I

I I

I I

I

Acknowledgments

Diverse projects over the years have added to my understanding of international economic negotiations, even though not all were designed exactly for that purpose, and it is a pleasure to record my gratitude to those who made those projects possible or aided their progress. My first large study concerned international monetary policies and the International Monetary Fund and benefited from support from the Carnegie Endowment for International Peace. A grant from the Ford Foundation in 1979-81 sent me to Brazil, Mexico, Hong Kong, South Korea, and U.S. cities to study trade conflicts between these countries and the United States. In each country I interviewed many former negotiators and industry representatives, who taught an academic much about the real economic bargaining process. During those years I enjoyed faculty support from the Harvard Center for International Affairs, directed by Samuel Huntington. An International Affairs Fellowship from the Council on Foreign Relations permitted me to spend a year in Washington in 1984-85. For nine months I was attached to the office of the U.S. Trade Representative, where I observed the process from the inside and learned more from experienced practitioners. I came to know the GATT in Geneva for the first time, and that year I also began a fruitful period as a Visiting Fellow at the Institute for International Economics, directed by C. Fred Bergsten. The main product was Anti-Protection: Changing Forces in United States Trade Politics, co-authored by I. M. Destler. The Social Science Research Council honored me with its Fellowship in Foreign Policy Studies in 1987-88. During this time I built a much larger set of cases from which to select and began comparing cases. Some of the results appeared in articles along the way. This fellowship also allowed me to spend more time with finance and trade negotiators in Japan and Korea. A grant from the Pew Charitable Trusts to the University of Southern California encouraged me to write cases for teaching purposes and to launch my first course on economic bargaining, where I have further refined my ideas. Pew enabled me to conduct field research in Brazil, Belgium, France, the United Kingdom, and Washington on two negotiations covered by this book. Training I conducted in Mexico City for the Mexican Foreign Ministry in 1992 further encouraged me to think these ideas might have practical value. In 1994-95 I was privileged to spend a sabbatical year at Stanford University, thanks especially to the warm hospitality of Walter Falcon and Coit Blacker of the Institute for International Studies. David Holloway and Michael May of the Center for International Security and Arms Control, Daniel Okimoto of the Asia-

xii

ACKNOWLEDGMENTS

Pacific Research Center, Henry Rowen of the world economic growth project, and Stephen Krasner of the sovereignty project also sponsored and encouraged my work. The Stanford community shared valuable suggestions and helped me make substantial headway drafting this book. That year William Zartman at Johns Hopkins University invited me to join a related project of the Processes of International Negotiation group at the International Institute for Applied Systems Analysis near Vienna. And not least, the University of Southern California Center for International Studies has, since its founding in 1986, provided a stimulating intellectual environment as well as much research assistance. I am deeply grateful for all this generous encouragement and support. Co-authors and publishers have given permission to incorporate material from earlier papers: Anne Dibble, Margit Matzinger-Tchakerian, and the University of California Press for material in chapter 6, reprinted from Peter Evans et al., Double-Edged Diplomacy: International Bargaining and Domestic Politics. Copyright © 1993 by the Regents of the University of California; and Barry Eichengreen and the University of Chicago Press for chapter 8, which appeared in an earlier form as "The United States, The ITO, and the WTO" in The WTO as an International Organization. Copyright© 1998 by the University of Chicago. All rights reserved. Parts of chapter 4 appeared in Japanese in Leviathan. I am pleased to acknowledge the fine help of research assistants John Beer, Richard Burkholder, Alberto Cimadamore, Surupa Gupta, Thomas Jacobsen, Gautam Jaggi, Nisha Mody, Jill Obery, Mark Oliver, Silja Bara Omarsdottir, Anna Ponder, Lavone Seetal, Paul Steenhausen, and Tracey Tierney. For thoughtful comments on chapters or related papers over the years, I am most grateful to David Baldwin, Robert Biller, Vivian Castro, Benjamin Cohen, Eileen Crumm, David Dessler, Marc Dillard, George Downs, Geza Feketekuty, Alexander George, Judith Goldstein, Joanne Gowa, Jana Harrison, Thomas Heller, Robert Jervis, Sung-jun Jo, Saori Katada, Robert Keohane, Jonathan Kirshner, Stephen Krasner, Andrew Kydd, Jeffrey Legro, Scot Macdonald, Andrew Manning, David Mares, Stephen Marks, Lisa Martin, Walter Mattli, Frederick Mayer, Timothy McKeown, Jonathan Mercer, John Meyer, Ronald Mitchell, Robert Mnookin, Ben More, James Morrow, Elayna Mosley, Vai-Lam Mui, Emerson Niou, Robert Neugeboren, Henry Nau, Sharyn O'Halloran, Susan Peterson, Robert Powell, David Priess, Carolyn Rhodes, Peter Rosendorff, Wayne Sandholtz, Leonard Schoppa, George Shultz, Murat Somer, Beth Simmons, Michael B. Smith, Richard Smoke, Debora Spar, Pamela Starr, Shibley Telhami, Alexander Thompson, Gilbert Winham, and Feng Xu. Hayward Alker, Michaela Dabringhausen, Randall Henning, Gary Hufbauer, Robert Paarlberg, Paul Steenhausen, Andrei Tsygankov, and Virginia Walsh were good enough to work over more than one chapter for me. Several friends made the ultimate sacrifice-laboring through the entire manuscript page by page with painstaking care. I am supremely grateful to Jonathan Aronson, I. M. Destler, Robert Friedheim, Joseph Grieco, Peter Katzenstein, J. P. Singh, Etel Solingen, Roger Tooze, and anonymous referees for sharing their expertise so generously.

ACKNOWLEDGMENTS

xiii

All these friends and associates suggested ideas I have incorporated and saved me from some problems. Editor Roger Haydon of Cornell University Press has long been a superb guide and critic. He also improved this book, like so many others. Finally, a special acknowledgment to my friends Robert Putnam, Robert Keohane, and particularly Peter Katzenstein for their inspiring intellectual leadership. After all this help, the only credible explanation for remaining shortcomings must be the author's limitations. JOHNS. ODELL

NEGOTIATING THE WORLD ECONOMY

Introduction

Hidero Maki and Michael B. Smith sit across the table from each other, staring in silence, for nearly an hour. Meeting in Tokyo in June 1988, Maki represents Japan; Smith, the United States. Their two governments are embroiled in a longrunning dispute over Japanese quotas that limit imports of beef and citrus products. Producers in each country are well organized and vocal, and their preferences are diametrically opposed. Each industry enjoys substantial political support in the national legislature. One deadline has already passed, and the chief executives, Prime Minister Takeshita and President Reagan, are scheduled to meet a few days hence. The delegations are at an impasse. Suits around a table: the image has become commonplace in our understanding of the contemporary world. Normally we expect a soundtrack as well, and indeed Ambassadors Maki and Smith did eventually resume their exchanges. At the eleventh hour they managed to fashion an agreement that no observer had expected: an end to Japanese beef and citrus quotas. The image may be commonplace, but the outcomes are often surprising. Currently we work with much less than full understanding as we contemplate the international economic negotiations that shape and reshape our world. What do government negotiators do when bargaining with one another over trade and finance? Why do some talks yield agreements but others end in impasses or ratification failures? What difference does the process make? Can they do better? - Since the end of the Cold War many have said that economics has become as important as security in international relations. Yet even though we embrace the cliche, we still have no general book devoted to the experience of the United States, the most influential player of all, in international economic negotiations. We are told that world affairs become ever more complex. Yet governments have been conducting economic negotiations ever since sovereign states came into being. To be sure, many Americans, and probably many Chinese and Russians as well, paid less attention before 1989, and especially before 1970, but people in less-gigantic countries took notice long before. If Americans believed during the Cold War that international relations were nothing more than a matter of war and peace between East and West, their thinking was oversimplified. Much of this book's evidence comes, in fact, from the Cold War era, and it shows that that era was certainly not as simple as some would have us believe. If its propositions were valid even then, they ought to be just as relevant, perhaps more so, for periods of lower security threat. In the future, reliance on negotiation surely will not decline. The much-noted

2

NEGOTIATING THE WORLD ECONOMY

opening of nation-states to integration with regional and world markets has also opened them to new forms of friction and conflict. Considering the depth and speed with which their policies penetrate each other's societies, governments' negotiations may cover more aspects of world society today than at any previous time. With this liberalizing policy trend, governments have constrained their abilities to decree economic and political outcomes and empowered other actors: commercial firms, banks, international agencies, and nongovernmental organizations concerned with the environment, human rights, and peace. All these actors seem destined to be thrown together repeatedly in multiple, overlapping processes of conflict and bargaining. Whatever institutions may prevail in future world affairs, negotiation will determine what they mean in practice for states, firms, and people. We cannot understand international economic conflict and cooperation without a better grasp of the process of economic negotiation. The central idea of this book, in a nutshell, is that variations in this process make a significant difference to outcomes, and that we can understand the process and practice it better than we do. Current political-economy knowledge emphasizes structures. Sounder understanding of the process would be valuable to any citizen or nation affected by it. The book expands this main idea into a set of specific causal propositions. It is organized around two core questions: (1) What strategies do international economic negotiators use and why do their strategies vary from case to case? (2) Why do negotiators gain more in some cases and less in others, even when using the same strategy? I concentrate on ten negotiations involving the United States, all from the last half of the twentieth century. Here is a preview of these specific conelusions. Trade and finance ministers use different negotiating strategies in different cases, and the options are not limited to defecting or cooperating, as other theories have assumed. What negotiators do varies along a theoretical spectrum (spelled out in chap. 2) from a pure distributive strategy on one end to a pure integrative strategy on the other, or from what I call "value claiming" through mixed strategies to "value creating." In many episodes since 1985, for example, Washington's trade negotiators have employed strict value claiming, demanding unrequited concessions from another country and threatening penalties otherwise (chap. 6 develops two cases). In other cases, though, U.S. negotiators have chosen a mixed strategy dominated by distributive tactics but including some integrative moves (chap. 7). On many other occasions the Americans bargained with a roughly-balanced mixed strategy (chap. 5), and in still others with a mixed strategy dominated by tactics from the value-creating end (chaps. 4 and 9). Purely integrative behavior is rarely observed. The economic negotiator's choice of strategy will vary, among other things, with objective market conditions (chap. 3). Unlike diplomats working for the same government on other issues, the finance or trade official is embedded in interactions with markets as well as with other states. Often, for example, reliance on markets as they stand represents an alternative to creation of a new governmental agreement. The better that market alternative looks to the negotiator, the

INTRODUCTION

3

more she is likely to demand inside the official negotiation, and the less she will concede to get the agreement, other things equal. Should her market alternative worsen during the talks, she is likely to soften her bargaining position (chaps. 3 and 5). Actual strategy variations may not necessarily track objective conditions perfectly. The real economic diplomat must act with less than complete information. In a hazy atmosphere, her ideas also influence her behavior. Negotiator Ns belief about how B will respond to possible strategies-a belief based on more than objective conditions-will also shape Ns strategy choice (chap. 4). If the real world is one of bounded rationality, identifying such key beliefs and their effects becomes a productive way to advance knowledge about, and the practice of, economic bargaining. Strategies in tum shape outcomes. In 1942-44, for example, had either Washington or London used a strict distributive strategy during their financial bargaining, they probably would not have produced the Bretton Woods agreements as we know them (chap. 9). In 1967 Brazil stirred an integrative element into what was an otherwise purely distributive strategy responding to U.S. demands concerning coffee trade, and almost certainly lost less than it would have had it stuck to strict value claiming. In 1988, agreement was out of reach for Ambassador Michael Smith, who was attempting to claim value from Japan on beef trade, until he too added an element of value creation to the mix (chap. 7). External strategies are not alone in shaping outcomes. Along the way the average negotiator will be subject to common judgment biases, just like the rest of us, and those biases will affect the values that the negotiator places on alternatives to agreement and proposed deals, and how she responds to negative feedback. For example, the more A uses tactics to offset biases on her own side, the more she will gain in the end on average, even without a change in strategy or the broad power structure (chap. 5). Finance and trade ministers also are embedded in complex two-level political games. While they are doing business with each other on one level, constituents and other officials at home are trying to influence their dealings. Thus, for example, the gains achieved abroad by a threatening distributive strategy will diminish to the extent that domestic politics at home undermines the threatening negotiator's credibility in a foreign capital (chap. 6). Domestic politics also affects the minister's perception of her alternative to international agreement. Domestic political institutions structure the process of negotiation and ratification after the signing ceremony. These institutions may not change often, but when they do the alterations can improve or worsen outcomes. Chapter 8 shows that requiring the agent to consult with principals more intensively during the negotiation reduces the odds of ratification failure. This chapter also extends earlier analysis to multiparty regime bargaining. All these propositions focus on the process of international economic bargaining in some way. They emphasize market conditions, negotiators' beliefs, and domestic politics as three key influences on strategies and outcomes. Some claims

4

NEGOTIATING THE WORLD ECONOMY

are specific to economic negotiations whereas others may apply more generally. Chapter 3 highlights what most clearly makes economic negotiations distinct from those confined to political-military issues. This book's primary audience is scholars interested in the world's political economy. Most of them are not specialists in negotiation, though that is changing. Most of all I write for those who wish to learn in depth about international economic negotiations and to improve theories about them. Simultaneously the book reflects dissatisfaction with the gap between academic theory and real-world policy making-a frustration shared by many academics. It aspires to contribute to theory that will be more useful. Thus I hope the book will also intrigue readers outside the academy-all those in any country who wish to understand the world political economy or negotiation at any level. This volume grapples with two enduring intellectual challenges in the study of international relations. The first is the phenomenon of negotiation, which is recurrent, widespread, and important. It is far more pervasive than war, fortunately, yet far less studied. Briefly, negotiation and bargaining refer to a sequence of actions in which two or more parties address demands and proposals to each other for the ostensible purposes of reaching an agreement and changing the behavior of at least one actor. Concretely, the process of international economic negotiation refers to what finance and trade ministers and diplomats as a group, joined sometimes by others, do with one another. The process includes which strategies negotiators choose, how markets and negotiators influence each other, whether they add tactics to unearth possibilities for joint gains, how much they use tactics to guard against their own biases, and how they go about forming and splitting coalitions. This process includes how the negotiator's moves shift domestic politics in her own and other countries and the odds of subsequent ratification. The outcome refers to the terms of a government agreement or implicit settlement (or an impasse), and not the effects official settlements may have later in markets or politics. The context involves the surrounding conditions that monetary and trade diplomats normally inherit and cannot influence much in the short run-cultures, international security conditions, international institutions, or domestic political institutions. Despite substantial good research, social science still does not understand the international economic negotiation process nearly well enough. This shortfall has left vivid marks on public debates about particular negotiations. For example, debates about other areas of public policy-early childhood development programs, pollution regulations, or even trade policy-often show at least some signs of exposure to relevant scientific findings. But when it comes to bargaining, the foundation is often no deeper than common sense homilies. Opinions are expressed with great confidence-"Our diplomats must be tougher with those foreigners"; "Don't damage our long-term political relationships"; "Agriculture must have higher priority this time"-but rarely is an argument for a particular bargaining strategy based on empirical findings of any kind. Many economic negotiators

INTRODUCTION

5

themselves, at least in the United States, are making do with improvisationbased on briefing papers on technical issues and intuitions from personal trial and error, but precious little systematic framework grounded in wider evidence-to guide the bargaining itself. The second perennial challenge to which this book speaks is methodological: How can analysts of international relations develop theories that will prove valid and empirically more useful? This ultimate purpose-theory that is valid empirically-gets short shrift in too much theoretical writing about international relations (IR). With phenomena like negotiation, where practice poses obvious barriers to the outside observer, what empirical research methods are capable of uncovering relevant facts about real negotiations while simultaneously strengthening generalizations and inferences across cases? This book responds to this challenge primarily by proposing explicit hypotheses and supporting several with focused contrasts between pairs of case studies selected to provide variation on the causal variable but matched with respect to other possible causes. The resulting book is, I believe, unusual, both empirically and theoretically. Empirically, most work on IR bargaining and conflict resolution is based on observation of only military crises, peace settlements, arms control talks, or the like. This is one of only a handful of books to concentrate on conflict and bargaining over economic issues in general, rather than on one or two cases. It is also the first general analysis, to my knowledge, of the experience of the United States in both monetary and trade bargaining. It reports the inside back-and-forth among diplomats, markets, and constituent organizations. These case studies are not limited to Washington's behavior; each analyzes the experience of at least two governments seen from each side. Readers interested in how agents for Brazil, the European Union, Japan, or Mexico behave in economic bargaining and in how to influence them, will find interesting material here. Much of our concrete knowledge about monetary and trade negotiations comes from case studies that have not been conducted primarily to develop negotiation theory. This book's cases are selected for theoretical purposes, its main method is comparative, and its main points are relevant beyond the events studied. This volume illustrates a promising method for additional comparative studies on other countries, issues, and times. Theoretically, this book departs from the most popular meaning of bargaining, as only a devious, manipulative business. Many commentators impose the metaphor of warfare or an athletic contest to interpret examples. Journalists try to evaluate outcomes by asking which side won. Even some specialists define the parties as "opponents," loading conclusions into the language itself. Yet many bargaining outcomes are not like those of wars or most games-they have positive sums. Not all moments in the process look like the eyeball-to-eyeball standoff in the snapshot of Mr. Maki pitted against Mr. Smith. On the other hand, some negotiation and cooperation studies concentrate on behavior and arrangements that might help everyone win, but neglect distributive behavior. Many actual agreements are not "win-win," despite soothing rhetoric at

6

NEGOTIATING THE WORLD ECONOMY

the end. Some mean gain for one party and loss for the other, relative to the prior status quo. Risks of exploitation are genuine and common, and lasting alternatives to costly conflict will need to include protections against such risks. A winwin bias can also obscure vital aspects even of episodes that do end with joint gains. Here negotiation is defined so as to anticipate both distributive and integrative behavior. Many cooperation studies (and even some bargaining studies) abstract from what actual negotiators do, or have only a partial conception of what goes into the bargaining process. Concentrating on background conditions, many leave the impression that process does not make much difference. One specific innovation here replaces the binary distinction between defecting and cooperating with the spectrum of strategy options. This concept helps to recognize much more accurately how actual negotiators' strategies vary, while still keeping the range of possibilities simple and ordered. Cooperation studies have also seriously underrepresented two-party cooperation and conflict, which can have large consequences and are emphasized here. This book assumes negotiators and others make decisions using bounded rationality, setting it apart from works that assume unbounded optimization as well as those that reject rationality. Nor will it fit easily into familiar IR molds such as realism or liberalism or constructivism. Horse-races between their partisans have distracted us, I believe, from the development of useful middle range theory. The evidence in books such as this one compels us to go beyond grand "isms" and toward something else-negotiation theory. Part 4 highlights the main implications for future research and practice. Scholars can make economic negotiation theory still better and more useful over the long term, chapter 9 argues. Chapter 10 closes with suggestions for improving negotiation performance today.

- - - - - - - - - C H A P T E R 1 _ _ _ _ _ _ _ _ __

Purposes and Present Knowledge

Every month, national governments negotiate over economic issues with each other and with international organizations and corporations. Why do these governments act as they do during their financial or trade bargaining, and what difference does it all make? How good is our knowledge of this process, and can it be improved? This chapter explains briefly why we need a new study and makes clear what this book aims to do.

A VALID AND USEFUL THEORY

My ultimate aim is a theory of economic negotiation that is better-grounded empirically and more useful than what we have today-useful both inside and outside the United States and outside as well as inside governments. A theory is useful when it helps one to understand the past and present accurately, to reduce the future's apparent uncertainty, or to choose courses of action that are not fundamentally contradicted by events. Some may doubt that a theory is necessary, or that such a thing is feasible in the case of international negotiation. The most elementary response is that no one can think without theory at some level. Stanley Hoffmann gives us a helpful distinction between theory as a set of questions and theory as a set of answers.l In the first sense, theory is a set of concepts telling us how to carve reality into parts, about which we can then gather evidence and draw conclusions. Even observation of a single negotiation and reflection on it requires a theory in this modest sense, and every observer employs some sort of taxonomy or conceptual framework, whether the observer knows it or not. Theory-as-answers is a set of general propositions that connect cause and effect, designed to help us understand why the social world behaves as it does, and how it will probably respond if we attempt to change it. A second response to the skeptic is that one who must approach every new event like a child-with concepts perhaps, but without any causal generalizations to guide-will be intellectually impoverished and socially ineffective. 2 Every day, adults make personal decisions that reflect at least primitive theoretical knowledge in this second sense. We use general propositions: smoking cigarettes inHoffmann 1960. I avoid "he" and "she" and their forms when possible. When the only alternative is awkward, I use one of the two consistently and they alternate by chapters. 1

2

10

ELEMENTS OF ECONOMIC NEGOTIATION

creases the risk of lung cancer; the faster one drives a vehicle, the greater the distance one needs to come to a safe stop; the more hostile my speech to another person, the less friendly the response is likely to be. The manager of a baseball team knows that every pitch will be unique, yet baseball managers often replace a right-handed pitcher with a left-bander when a left-handed batter approaches the plate, for everyone knows that on average the latter combination produces more outs. Likewise, when we consider a past or current international conflict or negotiation, we often reach for patterns to help us classify the events. The effort to improve negotiation theory is an effort to strengthen the general ideas we have available at such times. Generalizations are never sufficient for understanding any particular event. Theory is not everything but it is essential, and empirical validity is just as important inside the academy as outside. In fact, users of theory are surely more numerous inside the academy than outside. At least some of the time, we should fix our eyes on the prize: What is the best-grounded theory available today? How can it be improved?

BARGAINING AND NEGOTIATION When developing answers, this book observes several conventions and scope limits. The terms bargaining and negotiation are used interchangeably. Some have suggested reserving a specialized meaning for each, but the added complexity turns out to be more trouble than it is worth. The negotiation process refers broadly to the sequence of actions in which two or more parties address demands and proposals to each other, whatever particular steps it may include in a given case. Negotiation is not limited to manipulative behavior designed to take advantage of an opponent. Social psychologists have confirmed in laboratory experiments that many people bring a strong initial assumption that negotiation only divides a fixed pie. More striking still, deliberate efforts to train subjects to think otherwise have persistently failed to eliminate this zero-sum mentality, even when interests permit mutual gain. 3 Business professors who teach skills that go beyond the purely distributive find that prolonged and intensive training is necessary before experienced U.S. sales personnel become confident in their ability to negotiate with customers toward mutual gain. 4 Most of this evidence comes from North Americans, but some suggests the bias may be more general. 5 We should discard the war and sports analogies because they fundamentally confuse us. Scope for joint gain is a matter for investigation. Neither is negotiation only accommodation, conflict resolution, and win-win agreement. Zartman has defined negotiation as nothing but a positive-sum exer3 4

5

Thompson 1995 and works cited. Lewicki 1997, 264-65. Cohen 1996.

PURPOSES AND PRESENT KNOWLEDGE

11

cise, 6 one that begins with a shift from a winning mentality to a conciliatory one. 7 Others differentiate between negotiation and coercion or imposition, 8 implying that negotiations are encounters where imposition is absent. Insisting on this meaning, though, would reduce bargaining to virtually an empty set in practice. Coercion and influence are matters of degree and are present in almost every encounter of cooperation or conflict. Put differently, coercion is to negotiation as all is to some. Coercion and all are extreme end points on continua, and almost the entire continuum is occupied by negotiation and some respectively. Whenever party A:s best alternative to agreement is superior to that of party B and the parties perceive them so, B will feel it is facing unequal influence and A can impose terms less desirable than B would prefer, even when both feel they are gaining from agreement. Only in the theoretical case where parties happened to have equally attractive alternatives to agreement would imposition be balanced. In practice, even bilateral encounters between the largest players, such as the European Union and the United States, are often imbalanced, as we will see. Balance is even less likely in multiparty encounters, with so many more opportunities for pairwise inequality. It is difficult to find any historical international negotiation in which unequal influence and distributional struggle were not at work. It is easy to find bargaining outcomes that benefit one party at the expense of another. This book is not about all bargaining, only bargaining that is both international and economic. International means that at least one party is a national government and at least one other party is based outside that country. Economic negotiations are those in which parties' demands, offers, and related actions refer to the production, movement or exchange of goods, services, investments (including official development loans), money, information, or their regulation. This book concentrates on trade and finance, but economic bargaining includes other issues such as transportation, communication, and investment. All such episodes share a crucial property that is absent from typical security negotiations: they are sensitive to concrete markets. This market sensitivity is found in many cases that are otherwise diverse. Economic episodes are important enough and distinctive enough for study and yet they have not been viewed together in this light. Note that economic refers to the issues that parties discuss explicitly with each other, not necessarily to the goals that negotiators might have in mind. Suppose government A offered government B a trade or financial concession, and suppose one unstated objective was to make B heavily dependent on A in wartime. I would call this episode an economic-not a military-negotiation in which a secret security objective was heavily weighted. We already have substantial scholarship on 6 Zartman 1987, 6. "By its very nature, it is not a process of winning and losing, so that success must be evaluated against the problem, not against the adversary" (10). Actually, the author's own evidence shows that real parties try very much to win from adversaries and not to lose. A win-win bias also characterizes Fisher and Ury 1981, the world's best-selling negotiation book. 7 Zartman 1989,9-10. 8 Milner 1992; Hopmann 1996,29.

12

ELEMENTS OF ECONOMIC NEGOTIATION

economic sanctions and statecraft driven primarily by security and other noneconomic purposes. 9 This book instead aims to illuminate the great bulk of economic negotiations-those whose negotiating objectives are economic and domesticpolitical. Here, where most of the action in economic bargaining probably takes place, received knowledge is much less well developed. Eventually a valid single theory covering both types of economic bargaining would be even more useful. A third set of negotiations mixes economic with military, human rights, or other issues. For example, the Philippines and the United States bargain over military base rights and foreign aid; Ukraine and Germany negotiate over initial diplomatic recognition and establishment of relations. This book also sets aside such mixed episodes in order to concentrate on those limited to explicit economic issues. 10 There are already many studies of bargaining over military-political issues.11 It seems sensible to clarify purely economic negotiations next, before investigating whether mixed cases require additional analysis. PRESENT KNOWLEDGE

We already have many good studies that are relev