Theorizing Informal Organizations

This chapter presents the central theory the book explores. After a brief review of prevailing functionalist and power-based approaches, it argues that to understand when informal organizations will be established one must explain, first, how states form preference as to the legal designs of international organizations, and second, whose preferences are likely to hold sway when states join each other at the negotiating table. The theory of preference formation emphasizes the importance of domestic institutional structures, levels of domestic constraints, and levels of politicization. The account of preference aggregation processes, or bargaining, emphasizes the structure of the bargaining scenario and the distribution of power. The final part of the chapter outlines the more dynamic theory of informality that is offered. This account explains how domestic shifts within powerful states—especially growing polarization and the rise of the regulatory state—have projected outward and reshaped the global system.

The Implications of Informality

This chapter summarizes the main conclusions of the book, draws out its empirical and theoretical implications, and reflects on the broader policy debate about informal organizations. It begins by integrating the different pieces of evidence that have been presented in the book to assemble a more complete picture of the origins of informality. The main theoretical and empirical implications are then discussed. These primarily relate to current theorizing about informal organizations, research on the broader informal order these bodies are a part of, and the study of international relations and international organizations, broadly conceived. With respect to the policy debate, the chapter argues that the theory provides reasons to doubt some of the more optimistic claims made about informal organizations. Informal bodies are, in fact, less likely to be well matched with the problems they are supposed to solve.

Clashing over Competition

This chapter explores a more recent example of informal cooperation: the International Competition Network (ICN). This is an informal organization that arose in the early 2000s to address global antitrust issues. It is widely viewed as successful, and functionalist theorists believe that they can explain its emergence quite well. Not so. In fact, there was considerable disagreement over whether antitrust issues are best addressed in an informal forum, like the ICN, or should be delegated to a formal organization: the World Trade Organization (WTO). This difference is somewhat puzzling for the two-step theory, because independent agencies on both sides of the Atlantic were the primary actors involved. But the chapter shows that this puzzle dissolves once one considers patterns of politicization: where politicization was greater, actors embraced formality; where it was lower, a preference for informality was maintained. Ultimately, power was essential for determining whose preference held sway.

Conceptualizing and Mapping Informality

This chapter explains how informal organizations are conceptualized in the book. It also maps temporal and geographic trends. It starts by explaining the idea of a formal international organization and uses this idea as a model to illustrate the contrasting features of informal organizations. The chapter then reviews what are called the distinct “functional properties” and “domestic implications” of formal and informal organizations, which are central for understanding the different theories that have been offered. The final part of the chapter explains how the concept of an informal organization has been operationalized and used to generate a database of informal institutions. Descriptive statistics are presented that help scholars to visualize the institutional terrain any theory of informality must explain. These reveal the extraordinary growth of informal organizations since the end of World War II, as well as the central role of states in North America and Western Europe in that growth.

Keeping Governments at Bay

In this chapter, two of the most important informal organizations in the field of global finance are investigated: the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO). Functionalist and power-based theories have already been offered to explain these institutions. This chapter shows that they do not tell the whole story. Independent agencies played a prominent role in leading cooperation in these cases. While functional considerations were relevant, these agencies generally preferred informal varieties of cooperation because these preserved their independence more effectively. These preferences were also widely shared, despite the fact that there were quite significant differences in power and fairly high levels of conflict across states at certain points. Power-based approaches have difficulty explaining these processes, but the two-step theory can account for these patterns quite well.

Present at the Creation

This chapter explores the two-step theory of informality by observing the creation of two important organizations established at the dawn of the postwar period: the International Monetary Fund (IMF) and the General Agreement on Tariffs and Trade (GATT). These bodies emerged from the same multilateral framework, were intended to resolve problems that were similarly structured, and were established by nearly identical groups of states. Nonetheless, while one was formal (the IMF), the other was informal (the GATT). Why? The two-step theory offers a compelling explanation of these patterns. This is demonstrated by observing (1) how demand for governance first arose and then “selected” institutions to lead cooperative efforts, (2) how states formed preferences as to the legal design of each organization, and (3) how the distribution of preferences and power shaped the final outcome through processes of interstate bargaining.

Analyzing the Origins of Informality

This chapter presents the results of a quantitative analysis designed to test the observable implications of the two-step theory. The chapter begins with an overview of the dependent variable and the sample of international organizations that is used. The chapter then explains how the central domestic politics, functionalist, and power-based variables have been operationalized. The results of the statistical analysis are presented next, along with sensitivity analyses designed to check the robustness of the results. Overall, this provides strong support for the two-step theory explored in the book. In the final part of the chapter, the dynamic accounts of each theory are weighed against one another. This analysis reveals that shifts within the domestic political arenas of powerful states have been the biggest source of informality. Changing cooperation problems have played a critical role, too, but it appears that shifting power and interests have not influenced this trend in a significant way.

The Move to Informality

Informal organizations are the most visible dimension of a vast informal order that has been taking shape since the 1970s and 1980s. They are, however, its least understood component. The book explores why states create these puzzling institutions and why they have grown so significantly over time and assesses what this means for states’ ability to govern cross-border issues effectively. This chapter introduces the central themes of the book and reviews the answers it offers. Specifically, this chapter explains how the book conceptualizes the idea of an informal organization, how the book accounts for the design choices of states in particular scenarios, and how the “two-step” account the book develops can be extended to offer a “dynamic” explanation of the rise of informality. The main alternative explanations are also elaborated, and the central axes of the policy debate about informality are discussed.