EAI Asia Security Initiative Working Paper No. 1

Author

Yong Wook Lee is an Assistant Professor in the Department of Political Science and International Relations at Korea University. His research examines how identities and norms affect and are affected by states and their practices within domestic and international contexts.

His first book, entitled “The Japanese Challenge to the American Neoliberal World Order: Identity, Meaning, and Foreign Policy,” was just published from Stanford University Press (2008). Additionally, Lee’s works appeared in such journals as Review of International Political Economy, International Studies Quarterly, Journal of Contemporary Asia, Journal of East Asian Affairs, and Pacific Focus. He has forthcoming articles from International Relations of the Asia-Pacific and Asian Perspective.

Before coming to Korea University, Lee previously taught at the University of Oklahoma and Brown University.

A central paradox of modernity, then, is that a wide range of cultural forms can be found in different nations’ instrumental institutions despite the fact that all of those institutions are purportedly oriented to a unitary set of economic laws. (Dobbin 1994)

One of the most conspicuous phenomena in East Asian economic relations in the aftermath of the Asian financial crisis of 1997-1998 (hereafter AFC) is arguably the emergence of what William Grimes calls “East Asian financial regionalism,” which he defines in terms of “[East Asian states’] attempts to reduce currency volatility, to create frameworks to contain financial crises, and to develop local financial markets” (Grimes 2009, 2). Under the auspices of ASEAN plus Three (the Association of Southeast Asian Nations plus China, Japan, and Korea), which was created in 1999 by East Asian states as a forum for regional economic cooperation, three major financial initiatives have been undertaken: the Chiang Mai Initiative (CMI), in 2000, a framework to contain financial crises; the Asian Bond Markets Initiative (ABMI), in 2002, for the development of local financial markets; and the 2006 agreement to conduct in-depth research on the feasibility of an Asian Currency Unit (ACU) to manage volatility in exchange rates and currency arrangements.

Apart from the more formal and institutionalized form of this regional economic cooperation, what is most critical about it is its exclusion of the United States. Also excluded are such other Western members as Australia and New Zealand, which have been more active in the Asia-Pacific Economic Cooperation, or APEC, forum. Hence East Asian states, for the first time in a long while, have started to define Asia or East Asia apart from the Asian-Pacific as a whole. As a region, post-crisis Asia seems to have become a “regional society/regional community” capable of “articulating the transnational interests of the emerging region” (Hettne and Söderbaum 2000, 3-4).

What explains the development of East Asian financial regionalism? Is it a result of attempts by East Asian states to balance against the United States in order to adjust to the changes in the distribution of international and regional power in the wake of the Asian financial crisis, as neorealists would have us believe? Or is it the product either of East Asian states’ attempts to reduce transaction and information costs associated with their intraregional economic interdependence or of private sectors’ (big business) pressure, as neoliberals would claim? Although these rationalist accounts are suggestive, they have not been empirically corroborated. Rationalist accounts cannot capture the timing and content of emerging East Asian financial regionalism. First, with regard to the Asian financial crisis, there were no meaningful indications of change in either the military or the economic power structure before or after the crisis occurred (Ravenhill 2002, 169-172). Second, because of the negative economic effects of the crisis, the share of the intraregional trade for East Asia has declined in the post-crisis era while the overall export performance of each state in the region has consistently risen. This increase simply means that Asian states have relied more on external markets for their exports than on internal markets. As such, this material incentive for interregional trade could have led them to pursue a regional arrangement that would include as many important external trading partners as possible in an attempt to capitalize on the external partners’ markets. But if this analysis is true, the exclusion of the United States would not be logical. Third, the domestic interest group version of neoliberalism (Moravcik 1997) also does not account for the exclusion of the United States. Private sectors in East Asia have been at best ambivalent about their governments’ initiatives on exclusive regional groupings (Hund 2003; Ravenhill 2002, 173-174). Moreover, the prime drivers of post-crisis regional integration in favor of more government-involved regional institutionalization have been policy elites comprising government officials and members of the epistemic community (Tsunekawa 2004). Building on previous constructivist works that emphasize the decisive role of the Asian financial crisis in directing post-crisis East Asian regionalism (that is, the resentment on the part of crisis-affected Asian countries at the intrusion of the neoliberal approach of the United States and the International Monetary Fund), I account for the development of East Asian financial regionalism by demonstrating the linkage between particular forms of regional institutional development and the perceptions and self-understanding of relevant regional actors. As discussed below, however, previous constructivist studies tend to fall short of clearly identifying the content of this shared regional identity (or regional collective selfhood) and its historical underpinnings that have promoted its institutionalization and the exclusion of the United States from membership. To predict where East Asian regionalism is institutionally headed, more explanation of where it came from is needed.

To fill this gap, I take a view that is historically sensitive and that highlights the process-oriented, interactive development of the kind of collective self-understanding, solidarity, or “groupness” that can make certain kinds of collective action possible. In so doing, I employ both induction and deduction. Analytical steps taken are as follows: I do not assume a priori the existence of a certain “identity” shared by East Asian states. Instead, using the method of induction, I analyze a series of East Asian states’ confrontations with the United States in various regional forums to uncover the content of an emerging regional collective identity. My findings suggest that East Asian states have confronted the United States as part of their collective understanding of the legitimate role of the state in instituting and safeguarding the so-called self-regulating market for economic development and stability.

From these inductive observations, I deductively posit that this shared “economic policy paradigm,” defined here as “the institutionalized principle(s) of policy action that structure the . . . way in which policy-makers see the world and their role within it,” has shaped the development of East Asian financial regionalism. This “institutional rationality” embodied in the economic policy paradigm (the historically and culturally developed cause–effect understandings of economic governance), I argue, informs Asian states’ conception of rational economic order, which here manifests in the form of exclusive monetary cooperation. I illustrate this theoretical underpinning by examining the ways in which the CMI, undertaken in the year 2000, has developed since then. The Chiang Mai Initiative is regarded as the most important institutional development that defines post-crisis Asian monetary cooperation. For specific empirical discussion, I develop below two testable hypotheses drawn from inductive observation.

In so doing, I also aim to make a theoretical contribution to the existing literature of constructivism. To my knowledge, the current status of constructivism in the study of regional integration falls short of offering a conceptual apparatus (and conceptual vocabulary) that helps shed light on a mechanism through which collective identity-driven institutional rationality is translated into or shapes the concrete institutionalization of regional integration. As a way to account for this theoretical gap, I draw on insights from organizational institutionalist literature that explain how institutional change occurs in the interplay of regulative, normative, and cultural-cognitive dimensions of a given institution.

With regard to what this essay does not do, there are three interrelated issues to be clarified. I do not claim to offer an airtight linkage between collective identity-driven institutional rationality and the particular institutional shape of, say, the CMI. Since this paper does not engage in the detailed dynamics of East Asian states’ negotiations in institutionalizing the CMI, my claim must be modest. As such, my empirical and theoretical arguments are limited to identifying the parameters of the institutional preferences informed by the emerging collective self-understanding of East Asian nations. I use the case of the CMI only as a way to suggest the institutional parameters and their associated applications to the initiative’s development. Relatedly, I do not make any claim about the “real” intention or motivation of East Asian states’ identity discourses when I analyze them. This question is pertinent, but goes beyond the scope of this paper. (Such analyses will be carried out in future through examinations of the actual bargaining and negotiation processes.) Lastly, given the emerging and still contingent nature of regional institution building in post-crisis East Asia, the implications of this study for the future of East Asian financial regionalism can only be speculative.

That said, I proceed as follows. The first section suggests a more specified version of constructivism in analyzing the institutionalization of regional integration through the politics of inclusion and exclusion. The second section inductively uncovers the content of an emerging East Asian regional identity and process of institution building from which the United States is excluded. The third studies the development of the CMI in light of the collective identity-driven institutional rationality discussed in the previous section. The final section concludes with a few reflections on the future development of East Asian financial regionalism and the role of the United States in relation to it...(Continued)