Old and New

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Regionalism: Old and New Author(s): Raimo Väyrynen Source: International Studies Review, Vol. 5, No. 1 (Mar., 2003), pp. 25-51Published by: on behalf of Wiley International Studies AssociationStable URL: http://www.jstor.org/stable/3186488Accessed: 13-11-2015 00:52 UTC

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International Studies Review (2003) 5, 25-51

Regionalism: Old and New

RAIMO VAYRYNEN

University of Notre Dame and Helsinki Collegium for Advanced Studies, University of Helsinki

This review of recent literature on political, economic, and cultural regionalism shows that this area of inquiry has become increasingly fragmented not only as a result of debates between the protagonists of methodological approaches but also because of underlying changes in international relations. Traditional views concerning the state-centric regional system are being challenged by the concentration of political and military power at the top as well as by transnational networks built around economic ties and cultural identities. Early post-Cold War expectations that regions and regional concerts would form the foundation for a new international order have proven untenable. Instead, regions appear to arise either through the dissemination of various transactions and externalities or as protection against the hegemony of capitalist globalization and great-power politics. Older conceptions of regionalism need to be redefined and reintegrated into current international relations theories.

The purpose of this essay is to introduce and evaluate recent scholarship (for example, Lake and Morgan 1997; Mansfield and Milner 1997; Scott 1998; Solingen 1998; Baldwin et al. 1999; Hettne, Inotai, and Sunkel 1999; Hook and Kearns 1999; Mattli 1999; 000) examining security and functional regions,

juxtaposing these two types of regions and exploring the impact of recent methodological debates on our understanding of regionalism. Of particular interest is whether there exists in the field of international relations one logic or two with regard to regionalism, that is, whether geopolitics and capitalism are conflated or are both autonomous parts of this area of inquiry (see also Thompson 1983; Chase- Dunn 1989). Using the literature on regions and regionalism, this essay will argue that these two logics are analytically separable but empirically intertwined.

Defining Regions With the end of the Cold War and the trend toward economic globalization as well as the increasing complexity of international relations, the concept "region" risks becoming an empty idea. These forces have redefined the structural and agentive relationships between the global, regional, and national contexts. Moreover, they are leading us to re-examine the theoretical foundations of the study of regionalism. Our regional images are often based on unexamined and outdated metageographical conceptions of the world-a perspective dubbed the '4jigsaw- puzzle view" that assumes discrete, sharply bounded, static continental units fit together in an unambiguous way. Yet, the world is not structured in such a neat manner; to the contrary, regions disappear and reappear as they are transformed by various economic, political, and cultural factors (Levis and Wigen 1997).

? 2003 International Studies Review. Published by Blackwell Publishing, 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.



26 Regionalism: Old and New

Key Distinctions

Often those engaged in defining the concept "region" are content to list physical, political, and economic criteria without embarking on theory development. For example, Edward Mansfield and Helen Milner (1997) emphasize geographical proximity and specificity as the key defining traits of a region. Or, researchers refer to early conceptual analyses (for example, Thompson 1973) and essentially leave the concept undefined. Scholars in history and political science seem to think that they will know a region when they see one. For economists, the choice is even easier, region is coextensive with a preferential trading agreement or a customs union. Thus, L. Alan Winters (1999:8) discusses in detail the concept of multilateralism but takes its counterpart, regionalism, almost for granted. For him, it refers to "any policy designed to reduce trade barriers between a subset of countries, regardless of whether those countries are actually contiguous or even close to each other."

These are inadequate solutions to the definitional problem because both the character and functions of regions have recently experienced a major transformation. One change has occurred in the relative weights given various levels of

analysis--global, regional, national-and the links between them. During the Cold War, most regions were either political or mercantile clusters of neighboring countries that had a place in the larger international system. Occasionally, political and military motives fostered the establishment of superregions such as the North Atlantic Treaty Organization (NATO) and the Organization of African Unity (OAU). However, since the late 1980s, subregional and microregional organizations have become more common, for example, the Baltic Council of Ministers, the Visegrad Group, the Shanghai Group, and Mercosur. This trend is, in part, a response to the fragmentation of great-power blocs, especially in Eastern Europe and Central Asia, but it also reflects the need to react to the pressures created by economic globalization through local means.

A second change is the growing differentiation between physical (geographical and strategic) regions and functional (economic, environmental, and cultural) regions. This transformation appears linked to the first change. The increasing emphasis on the global-regional relationship has led to paying more attention to functional and subregional relations, even though the nation-region nexus is still predominantly viewed in physical and state-centric terms.

The study of regionalism is also undergoing a methodological renewal that is manifested in the new divide between rationalist and constructivist research agendas regarding the processes of region formation. In the past, regions were often delineated and compared in time and space inductively by using data on the economic and institutional ties between states (for example, Russett 1967; O'Loughlin and van der Wusten 1990). Currently, most trade economists take regions as institutionally granted-for example, the European Union (EU), North American Free Trade Agreement (NAFTA), and Mercosur-using them to study changes in the shares of intra- and interregional trade (for example, Frankel 1997, 1998). As a result, the economic approach provides reasons for the debates between regionalists and multilateralists, but the arguments do not necessarily contribute to the study of the dynamics of economic regionalization except in tracing changes in trade shares. Thus, for example, Jeffrey Frankel (1997) found in 1994 that regional trade concentration ratios were the highest in Mercosur and the Andean Community followed by ASEAN, NAFTA, and the EU, whereas a comprehensive assessment of the depth of integration in these various regions based on nine different indicators showed that the European Union was in the lead followed by Mercosur (Page 2000).

In contrast to this more material delineation of regions, the constructivist approach stresses how regions arise from the redefinition of norms and identities by governments, civic groups, and business firms. The use of common cultural



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identities to define regions grew out of the process of decolonization, which was observed to lead to the construction of "culture blocs" (Meinig 1956). By "social construction" of regions is meant that regions are shaped by the collective perception of identities and meanings with blurred and ever shifting boundaries. This view rejects the static conception of regions and considers them changing cognitive structures cemented by common institutional and economic ties (see also Murphy 1991; Adler 1997). Constructivism stresses the instrumental uses of regionalism to promote specific political and economic ends. To constructivists, actors create social facts by assigning functions to various spatial units. These functions "are never intrinsic; they are assigned relative to the interests of users and observers" (Searle 1995:19). Functions assigned to social facts can be either agentive or non-agentive; the former serve the intentions of actors, but the latter happen independently. Obviously, the physical location of a region is non-agentive; the establishment of a regional military alliance has an agentive function.

In the study of regions, then, the key dimensions center around the division of the world by levels of analysis and by the physical-functional distinction. Physical regions refer to territorial, military, and economic spaces controlled primarily by states, but functional regions are defined by nonterritorial factors such as culture and the market that are often the purview of nonstate actors. For instance, an ethnic group may want to create a cultural region and use it agentively to promote an independent political community. In the global system, economic regions are constructed by transnational capitalist processes, environmental regions by the interplay between human actions and the biosphere, and cultural regions by identity communities.

The distinction between physical and functional regions is reminiscent of Manuel Castells' (1996) differentiation between a "space of places" and a "space of flows." He defined a place as "a locale whose form, function, and meaning are self- contained within the boundaries of physical contiguity" (Castells 1996:423). Places are historically rooted yet reshaped increasingly by the flows of information and people. The space of flows refers to the "material organization of the time-sharing social practices that work through flows" and networks (Castells 1996:412). Networks have their own hubs of power and managerial elites who, even though spatially located, organize the space of flows independently of physical contiguity.

In international relations, the study of physical regions has been predicated on the notion of anarchy, which leads sovereign states to work to control specific territories and to form regional security complexes. As a result, regions are defined as spatial clusters of states that the logic of anarchy has facilitated, positively or negatively, becoming dependent on each other. In contrast, the study of functional regions does not need the assumption of anarchy. The driving force in functional regions is either the economy (for example, production networks), the environment (for example, acid rain), or culture (for example, identity communities). Whereas physical definitions of regions are usually provided by states in an attempt to reaffirm their boundaries and to organize into territorially exclusive groups, functional conceptualizations of regions emanate from the interplay of subnational and transnational economic, environmental, and cultural processes that the states are only partially able to control. Thus, the control of places and the control of flows require different ideas and instruments depending on which definition of region one employs.

A number of scholars (for example, Agnew and Corbridge 1995; Newman 1999) have tried to link the physical and functional conceptions of regions by focusing on the boundary-eroding consequences of globalization and identity formation and the extraterritorial challenges to sovereignty that these forces unleash. They suggest that physical and functional definitions of regions may be viewed as a sequence in which territory gradually gives way to space. Indeed, the transition




from physical to functional regionalism is due to the increase in the interaction capacity of the system. In a low-capacity international system, physical vicinity matters; states are linked with their neighbors by economic and security concerns and international relations are subsystem dominant. An increase in the interaction capacity of the system helps the actors reach beyond their immediate neighbor- hoods; these new contacts give rise to more system-dominant international relations (see also Buzan, Jones, and Little 1993).

Regionalism and the End of the Cold War

During the Cold War, bipolarity and nuclear weapons created contextual effects that contributed to the emergence of a semiglobal system. In Europe, in particular, extended US nuclear deterrence and Soviet political-military control of its eastern half limited the autonomy of individual states and made them parts of a larger whole. Local security systems existed, but they were overshadowed by the ability of external powers to "move directly into the local [security] complex with the effect of suppressing the indigenous security dynamic" (Buzan 1991:219-220).

The end of the Cold War has reduced the effects of the global system on regional security dynamics and national decisions. Thus, "an end to the bipolar cleavage [has led] to a restoration of regional sovereignty" and to the establishment of "several regional powers dominating their geographical areas"( Rosecrance 1991:373, 375). Changes in the international structure and new security challenges were expected to push the development of regionalism, providing order and stability in the regions (see Rosecrance 1991; Hurrell and Fawcett 1995; Morgan 1997). And certainly in Africa, the Middle East, and Southeast Asia, one can discern tendencies toward a diminution in the presence of the major powers, especially the USSR/Russia (see Keller 1997; Khong 1997; Pervin 1997). Indeed, Arthur Stein and Steven Lobell (1997) have argued that even during the Cold War regional security was not globalized. Though the United States was a significant player in most regional security arrangements, it, too, remained reluctant to participate in African and Asian conflicts that were not considered central to its interests.

The thesis proposing the rise of regionalism with the end of the Cold War has also been contested. Early on, Richard Rosecrance (1991) noted that this scenario could be challenged by two competing models, namely US hegemony and a global concert of powers. In fact, he argued that because the global concert was an unlikely prospect, the dominant international role of the United States remained the major challenge to the regionalist scenario. And, in terms of the distribution of capabilities, a number of scholars (for example, Mastanduno 1999; Wohlfort 1999) have defined the present system as a unipolar order that appears durable and peaceful. Because of US dominance, counterbalancing regionalism is not an option as the pivotal states in each region prefer, instead, to align with the unipolar center of power.

This latter interpretation appears myopic, however, because it makes the assumption that dominant economic and military capabilities can be invariably converted into regional political control. Despite its material superiority and local political commitments, the United States (or any other external power) is unable to effectively control regional security processes. Consider the limits of US influence on the former Soviet states. Much of post-Soviet space continues to be a separate international region where Russian hegemony prevails (Roeder 1997). Of course, given that Russian space is vast, amorphous, and administratively complex, it is difficult to master such control without a strong organization and resource base. No doubt Vladimir Putin has learned that it is not as easy in actuality as it is rhetorically to pursue becoming a strong state and a major power while simultaneously maintaining regional hegemony (Medvedev 1999). The war on terrorism since the events of September 11, 2001 has strengthened Putin's hand in this regard in



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Russia while at the same time bringing about a realignment with the United States that has reduced the autonomy of the Eurasian political space, especially in the Caucasus and Central Asia (Stent and Shevtshova 2002/2003).

In the post-Cold War international system, even though there has been an increasing demand for external intervention and crisis management for humanitarian and other political reasons, neither the United States nor any other major power has shown a willingness to shoulder the full responsibility for managing these regional crises. As a solution to this dilemma, some have suggested the establishment of a concert of powers to replace global hegemony (which is thought to be unattainable) and a balance-of-power system (which is considered unstable). Indeed, a central theme of David Lake and Patrick Morgan's (1997) edited book Regional Orders is the advocacy of regional concerts and the assessment of their feasibility.

The Prospect for Concerts

A concert requires from its members a commitment to common goals and policies while at the same time permitting members to pursue their own specific interests. In effect, a concert tries to find a middle way between the instability of a balance-of- power system and the rigidity of the collective-security system. Scholars, however, differ in their definition of what a concert is and their assessment of its feasibility. For example, Paul Papayoanou (1997) has argued that economic interests of the major powers drive them to engage in regional security arrangements. In his view, Western Europe was the most likely candidate for a concert given the complementarity of the economic interests of the countries in this region and their capacity to make credible commitments. His stress on the co-management of security problems hints at an assumption that a concert-type arrangement may be necessary where there are potential conflicts between the powers in a region. Ole Waever (1998) seems to agree with Papayoanou by refusing to rule out security rivalries, short of war, among EU members. These scholars' ideas contrast with a common view that the Western European region is not only a regional security complex but also a security community in which mutual interdependence and identity are a strong guarantee against conflicts over security.

Western Europe may not be a good example of a regional concert due to its collective defense alliance with the United States. This alignment reduces the opportunities for the European NATO members to pursue their own policies, not to speak of limiting their ability to opt out of the alliance. NATO has historically lacked some key characteristics of a concert such as political flexibility and freedom of choice as well as members of roughly equal size. Perhaps a better definition of a concert would be a political arrangement between nonallied states that possess a significant interest in, and capacity to, reduce the level of international conflict in their region by their common actions without resorting to mutual competition or free-riding.

Rosecrance and Schott (1997) seem to doubt that the power of common interests in conflict mitigation can lead to a concert. Instead, they stress the importance of shared ideology and financial interdependence. Applying the oligopoly model to international security relations, these authors suggest that a great-power concert is analogous to a business cartel that fixes prices and production quotas. Although members of a cartel depend on each other and may share some values, their primary relationship is competitive. Thus, members prefer a concert to mutual rivalry, balance of power, or closer integration.

Rosecrance and Schott distinguish between central and regional concerts, suggesting that the main task of the central concert is to integrate former adversaries into a cooperative security system, but an effective regional concert reduces the security costs of the central concert and removes potential frictions




from its agenda. This perspective may be too narrow because a concert can also be set up to manage a particular security problem and to avoid unilateral interventions that would only lead to a deterioration in the situation. Bosnia and Kosovo show how regional instability can call for coercive intervention by a central concert without creating a robust regional concert. In fact, the economic resources of the core states-in this case the European Union-may be a necessary incentive to gain local cooperation.

Scholars writing about specific regions also differ in their conclusions regarding the feasibility and effectiveness of regional concerts. With regard to Latin America, for instance, David Mares (1997) argues that the best alternative is the stabilization of the old balance-of-power system with continuing, but possibly less hegemonic, involvement by the United States. This advice is questioned by Andrew Hurrell (1995, 1998) who claims that a security community, although loosely knit and bounded, is emerging between the two old rivals Argentina and Brazil and eliminating their old balance-of-power competition. He notes, though, the ambiguities in Brazilian policy and its refusal to commit itself to a deeper cooperation in the hemisphere that is made even more difficult by the economic crisis in both countries.

The rejection of the nuclear-weapons option by Argentina and Brazil, their mutual confidence-building measures, and the establishment of Mercosur (Mercado Comun del Sur) have created an impression of new regionalism in the Southern Cone of Latin America. And Mercosur has, indeed, sparked a major surge in intraregional trade but without diversifying trade significantly with external partners. Moreover, although increasing, intra-Mercosur trade has been growing primarily in the less dynamic sectors and has not led to a change in its role in the international division of labor (Cammack 1999; Roett 1999). Since 1998, the region has been experiencing a major economic crisis. As a result of the 35 percent devaluation of the Brazilian real in that year, trade relations with Argentina have stagnated and companies have begun moving their businesses to Brazil. Since the deterioration of the Argentinian economy in 2001-2002, the pressures within that country have also been increasing, but even so Mercosur seems to be able to muddle through (Phillips 2001).

If Latin America does not have a robust regional concert, how about other regions? David Pervin (1997) has argued that the Middle East does not have a concert but rather a superficial balance-of-power system. Some (for example, Aarts 1999) have even asked whether there is any regionalism at all in the Middle East. In the last couple years, it has become clear that unilateralism rather than concert behavior is the main rule in this area of the world. However, the recent establishment of the Quad composed of the United States, Russia, the European Union, and the United Nations to promote a peaceful solution to the Israeli- Palestinian problem suggests that having a central concert may be one of the few viable alternatives to managing conflict in an unruly region.

In the Asia-Pacific region, the balance-of-power system has seldom been considered a viable option. Instead, a regional concert of power-comprising the United States, China, Japan, and Russia--has been offered as an alternative (Shirk 1997). Today, there are signs of the emergence of such a concert in the effort to collectively pressure North Korea to give up the nuclear-weapons option. The absence, however, of a shared ideology in this region has been viewed as an obstacle to building such a concert. Behavior in the region is "preeminently political, focused on building trust and shared understandings, and, in the process, shaping the normative context of the metaregime rather than on the immediate regulation of state behavior through specific regimes" (Alagappa 1998:643). With regard to Africa, both the internal politics of the states and their mutual relations are too fragmented to make it meaningful to speak of a regional concert, although the competitive bargaining between South Africa, Nigeria, and Senegal in the



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establishment of NEPAD suggests there may be the beginnings of a regional dynamic at play.

This discussion leads to the inevitable conclusion that even though regional concerts have some prospects, they are not a likely outcome in most regions. Either the region is too fragmented (the Asia-Pacific region and Africa) or external powers have too much influence (Latin America and the Middle East) for a coherent regional concert to be a feasible option. Charles Kupchan (see Kupchan and Kupchan 1991) has been perhaps the most vocal advocate for a concert solution to European security problems. He perceives a concert as a particular form of collective security; it tames international anarchy and, as a result, ameliorates the security dilemma while at the same time not committing states to common action. In his view, it also leads to institutionalized, cooperative management of security relations and permits a smooth formation of balancing coalitions.

Kupchan and other supporters of the concert approach (for example, Richardson 1999) draw for their arguments on the nineteenth-century Concert of Europe without necessarily recognizing that some things have changed significantly since then. The dynastic consensus has given way to ideological heterogeneity and the degree of economic interdependence is now much higher. As a consequence, coalitions among the major powers are formed more on the basis of economic than ideological criteria. (This is why China and Russia continue to cooperate with the West.) Moreover, the increasing spatial incongruence among economic and security institutions complicates the formation of concerts (Kupchan 1997). Nevertheless, with the enlargement of the European Union and NATO, this congruence appears to be growing again within Europe.

The limited feasibility of, and the diminished need for, concert-based collective security has cooled down even its main advocates (see also Rosecrance and Stein 2001). Even though Kupchan (1997:224) admits that "a pan-European collective security system offers an attractive end point for Europe," he has come to favor, as an interim solution, the establishment of three subregional security groupings, one each in western, central, and eastern Europe. These would balance power on the European scale and, thus, help build a "pan-European security community" (Kupchan 1997:229). Cooperation between the subregional organizations would be managed by two pivotal states, Germany and Ukraine. Unfortunately, this strategic vision lacks a political basis given that the Central European states are unwilling to establish a new subregional organization and Ukraine is not a capable and acceptable intermediary between Central and Eastern Europe. In effect, the German-Russian relationship remains pivotal on the ground; and, yet, to avoid future risks it needs to be embedded in a multilateral framework.

Although not those that Kupchan proposed, subregional organizations are growing in Europe, but in a less planned way. About a dozen such organizations (for example, the Council of Baltic Sea States, Central European Free Trade Agreement, Visegrad Group, and the Black Sea Economic Cooperation) have been set up. Their function is to reintegrate subregions in Europe that were divided during the Cold War. These subregional organizations are not an alternative to the enlargement of NATO or the European Union; in fact, some may become unnecessary after such enlargement takes place. Yet, they have contributed to cooperation and its institutionalization in the pan-European context (see Bremmer and Bailes 1998; Kearns 1999; Konidaris 1999; Cottey 2000).

If the theory and policy regarding a regional concert in Europe have come to a dead end and subregionalism is still too weak, what, then, is the alternative? Kupchan (1997) appears on the right track in arguing that there is a tendency toward a pan-European security order. As we have already observed, such an order is being realized not by any grand design but rather by much more subtle processes. Indeed, the gradual strengthening of security arrangements through the enlargement of NATO and the European Union may provide the most feasible




strategy for building this security order. In NATO and the European Union, the enlargement process started by various thin arrangements of military and economic cooperation with the accession states. These arrangements were then gradually and selectively converted into thicker forms of integration and, ultimately, will evolve into full membership for these countries. In the course of this process, a major goal was to maintain a balance between the costs and benefits of enlargement, which has often militated against the wishes of new members to join the organization without delay (see also Croft et al. 1999; Mannin 1999; Sandler and Harley 1999). In contrast, consider how the Organization for Security and Cooperation (OSCE) and the Council of Europe enlarged. In their case, new members came on board and immediately had to assume essentially the same political and legal obligations as older members.

Globalization and Regionalization In the security sphere, the weakness of global arrangements has given priority to the national and regional levels. And as major powers, particularly the United States, wield decisive unilateral and multilateral influence, the national-regional linkage continues to dominate international security relations. If concerts between major powers are established at all, they are informal arrangements focusing on the management of a particular crisis rather than, as traditional theories suggest, comprehensive arrangements to produce collective security. The Contact Group, dealing originally with Bosnia and then other parts of the former Yugoslavia, is an example of a new type of concert of major powers (Boidevaix 1997; Giersch 1998).

In the economic sphere, however, the situation is quite different. The process of globalization, although partial and variable in nature, is creating an increasingly autonomous economic reality that interacts directly with both national and regional economies. The formation of regions takes place at the interface between global economic and technological forces and national realities. National actors may, in fact, perceive regionalism as a defense mechanism against the competitive pressures arising from the globalization process (Pelagidis and Papasotiriou 2002). Moreover, regions are shaped by the spillover of domestic conditions across borders. Despite that connection, the new regionalism cannot be linked solely with national factors and separated from the global context. Instead, "the two processes of globalization and regionalization are articulated within the same larger process of global structural change" (Hettne 1999:2).

The mutual interdependence or dialectic between globalization and regionalization is widely accepted; indeed, among radical political economists the point is uncontested. According to Samir Amin (1999), the historical development of capitalism has been to gradually move from the local level to the global, and at each step to create new polarizing tendencies. To be able to improve their economic positions, peripheral countries have had to de-link themselves from the global system and adopt alternative, countervailing strategies, one of which is regionalization.

James Mittelman (1996, 2000) also considers "transformative regionalism" a counterthrust to "neoliberal globalization." His view of regionalism is more nuanced than Amin's noting that the tendency toward flexible specialization in global production networks gives rise to many different types of regional and transborder arrangements. Mittelman warns against a too strict contrast between globalization and regionalism. This point has been made more specifically by Ralph Pettman (1999) who reminds us that such a simple dichotomy has both analytical and political costs. Analytically, one may ask "what's the point of dichotomizing regionalism and globalism when they would seem to be points [along] a continuum and not [really] opposed?" (Pettman 1999:199). Politically, the counterposing of



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these two categories can lead to an antagonistic impression that the West is global and the East regional.

The relationship between globalization and regionalization has been extensively studied and debated by mainstream economists. The basic question underlying this research and current debates is stated well by Bhagwati (1991, 1992) when he asks: Were the preferential free trade areas and customs unions belonging to the "second regionalism" of the 1980s building blocs or stumbling blocs for the multilateral economic order? In his view, due to the dominating effects of trade diversion, regionalism became a stumbling bloc, slowing down progress toward multilateralism. In contrast to the advocates of regionalism, Bhagwati and others (for example, Krueger 1999; Panagiriya 1999) do not seem to believe that globalization as such elicits regional responses; they start from a regional perspective and explore its effects on the global trading system.

The possibility that regional trading arrangements block multilateral free trade should receive a fair hearing. In particular, political economy models observe that due to the prevalence of vested interests and lobbying, regionalism is often accompanied by protectionism and trade diversion that may lock the participants into closed economic blocs. Moreover, effective regionalism is a policy pursued by strong powers, but the weak ones are sidelined in all ways in the global trading system (Pelagidis and Papasotiriou 2002). A review of this literature (Frankel 1997:216) concludes that "there is no shortage of models and arguments in which regional trading arrangements can undermine multilateral liberalization." The expectation of trade diversion at the expense of trade creation-and, thus, gains for special interests--increases the likelihood of concluding a preferential trading agreement (Grossmann and Helpman 1995).

In contrast, there is also abundant evidence that regional arrangements are compatible with, or even pave the way for, multilateral trade liberalization. Regional preferences can strengthen export constituencies, provide insurance against failures, lock in unilateral liberalization, and encourage competitive liberalization. Within regions, industries in which export-oriented firms dominate have a greater interest in achieving returns to scale and in promoting regional and international liberalization of trade (Busch and Milner 1994; Milner 1997). Although the actual picture is always complex and mixed, on balance there appears to be support for the contention that regional and global trading arrangements are compatible with one another (Oye 1992; Frankel 1997; Ethier 1998).

Moreover, this benign interpretation of preferential trading agreements receives confirmation in empirical studies of international trade flows. Obviously, some regional arrangements are more open than others and trends among industries and regions vary. And, in some cases, trade within regions has expanded more quickly than between them. But there is little evidence that the world economy is devolving into exclusive regional blocs and, even less, into permanent trade wars. To the contrary, both intra- and interregional trade seem to be expanding simultaneously without undermining each other (Milner 1994; O'Loughlin and Anselin 1996; Frankel and Wei 1998).

Economists arguing about the relationship between regional and multilateral trading arrangements invariably take regionalism as their point of departure and assess whether regionalism is closed or open. Irrespective of the empirical conclusion, their normative stance is usually that closed regionalism is malign; instead, they propose that we should be interested in trade-creating building blocks for a liberal world order (for example, Hormats 1994). It is intriguing that economists seldom ask how economic globalization might potentially shape the process of regionalization, the question of major concern for political scientists.

One of the few exceptions is Robert Lawrence (1996) who argues that economic globalization does, in fact, demand deeper regional integration. He rejects the traditional view that foreign direct investment (FDI) and trade are substitutes for




each other. Instead, Lawrence observes the growing role of FDI and the need it creates to restructure, specialize, and engage in network production. The expansion of FDI has led to regional production and service clusters intended to improve efficiency and reduce transaction costs. Due to the globalization of FDI, regional integration has become progressively deeper and moved beyond preferential trading arrangements.

Political-Military Regions Given our discussion to this point concerning global-regional security linkages, especially from the viewpoint of concert theory, it is possible to conclude not only that this linkage is relatively weak but that the theory itself is conceptually muddled and empirically of limited value. Therefore, alternative formulations are needed to create a proper spatial context for security theories. This task seems all the more important because defining region and regionalism using the concepts of traditional security theories does not appear to be of much help. Neorealism-with its focus on anarchy, risks of defection, and relative gains-does not take spatial dimensions seriously. The same applies to neoliberal institutionalism in which spatial concepts find hardly any place at all. Instead, institutions are treated almost exclusively as analytical and nonspatial phenomena (for example, Baldwin 1993; Haftendorn, Keohane, and Wallander 1999). Only in discussions of "offensive realism" do we find strong geopolitical undertones as a result of its concentration on great-power competition (Mearsheimer 2001).

Externalities

The problematic status of regionalism in mainstream international relations theories may explain why their supporters introduce the spatial dimension only indirectly by using general concepts such as externalities. An illustrative externality is the concept "regional security complex," defined as "a group of states whose primary security concerns link sufficiently closely that their national securities cannot realistically be considered apart from one another" (Buzan 1991:190). These complexes are kept together by the negative or positive security links between states.

Lake and Morgan (1997) use the regional security complex as their basic unit of analysis. Indeed, these scholars have picked a specific aspect of the complex to study, namely, "regional order," which they view as "the mode of conflict management within the regional security complex" (Lake and Morgan 1997:11). These orders can produce security in different ways: by integration, pluralistic security communities, collective security, a great-power concert, or power politics. Moreover, regional orders contain different mixes of cooperation and conflict and varying degrees of external penetration. And there is a certain hierarchy among the security orders; they are "rungs on a ladder up which regional security complexes may climb as they pursue security management" (Morgan 1997:16).

Lake and Morgan's state-centric approach is reflected in their definition of region, which they argue is held together by negative and positive security links between states. The amount and strength of the links can be used to define the territorial domain of the region. Lake (1997) has made a theoretical attempt to develop an institutional conception of region by building on positive and negative externalities that are primarily nonspatial (but based on state-centric premises). As a result, he conceives of a regional system as "a set of states affected by at least one transborder but local externality that emanates from a particular geographical area" (Lake 1997:48). As externalities are usually reciprocal, the mutual imposition of this set of states upon each other creates an externality "that binds the relevant



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states together as a set of interacting units" (Lake 1997:40). Externalities may be due, for instance, to collective action problems or particular policies that neighboring states pursue toward one another.

The externality approach does not address the conceptual transition from the study of regional systems to regional orders that is a common weakness in the theory of regional security complexes. In fact, the approach seems to lead to the study of coalition formation as the operative mechanism in region formation, reinforced by the emphasis on transaction costs. One can assume that actors use externalities as grounds for making decisions on their participation in regional security arrangements. Furthermore, it seems likely that actors affected by the same external effects are inclined to deepen their cooperation for mutual protection. (The traditional example is, of course, the establishment of a defensive coalition against a common external threat.) This reaction tends to exclude sources of negative externalities from the regional system. Against this backdrop, one can define a regional security system as a coalition in which positive externalities are maximized and negative externalities minimized (see also Lake 1996). This choice helps give size and a spatial domain to the regional system.

This theory of externalities can help us differentiate among security orders. Integration and the building of security communities are principal intraregional strategies that facilitate the development of a local security order, but hegemony, concert, and balance of power almost always involve extraregional powers. As it may be misleading to exclude external factors from the analysis of regional security, a potential next step would be to explore the relationship between the intra- and extraregional dimensions of security orders. Such an analysis would benefit from the specification of the kinds of externalities that different security orders produce, for instance, the externalities of hegemony (limitation of the domestic autonomy of smaller states) compared with those involved in the balance of power (breakdowns that can lead to war).

An intriguing possibility is that the concept of externality may be emerging as an analytical tool by which both those advocating liberalism and realism can incorporate regionalism into their theoretical frameworks. In the liberal context, as Walter Mattli (1999:44-50) has argued, regional integration can be seen as an institutional arrangement through which externalities are internalized by establishing rules, regulations, and policies. The demand for such rules and policies comes primarily from below, that is, from the market and civil society actors who suffer from high opportunity costs under prevailing institutions. These costs, and the promise of benefits under alternative arrangements, create an interest in transforming current rules and policies.

Mattli (1999) correctly notes the possibility that regional integration by means of the internalization of externalities will encourage protectionism and, as a consequence, undermine global multilateralism. Those affected outside may respond either by merging into the area or by creating their own regional group. In addition to policy imitation, outside countries may apply for membership if there is an economic performance gap that is working to their disadvantage. Mattli also suggests that an economic union accepts new members only when negative externalities originating from them threaten to disrupt the union or when the costs of externalities are higher than those of admitting these new members into the union.

As this discussion indicates, in the study of regionalism, realism and liberalism have more in common than we might expect from recent debates. One of the common traits is the assumption of rationality; national reactions to both negative externalities and rising transaction costs are determined by the net costs accruing to the states. This rational account of region formation, though, runs into problems when we try to do empirical research. How are we to measure externalities due to such things as environmental pollution, illegal migration, or political instability and




compare them with the costs of membership when these externalities are supposed to be internalized?

Domestic Coalitions

The theory of externalities can also be used to tap nonrational approaches to the study of regionalism. Take, for example, Etel Solingen's (1997, 1998) writings that emphasize the importance of domestic coalitions and the grand strategies that they pursue vis-a-vis other states. In this way, she helps us break out of the state-centric framework in which much of the study of regionalism has found itself confined. Solingen distinguishes between liberal-internationalist and statist-nationalist coalitions; the former prefer economic cooperation and political accommodation, and the latter seek economic protection and political conflict. As a result, the structure of the regional order can be liberal (Western Europe), nationalist (Middle East), or mixed (Southern Cone of Latin America).

Solingen's coalitional approach is compatible with Lake's (1997) theory of regionalism because the impact of coalitions on national strategies (inside-out effects) can be considered externalities that create costs or opportunities for other states. The way in which these externalities are received and reacted to by other countries depends, according to both theories, on the nature of the dominant coalition. The coalitional approach to regionalism permits a dynamic and cognitive conception of region because "the scope of the region is thus in the eyes of coalitional beholders, and therefore subject to continuous redefinition" (Solingen 1998:4). Like the theory of externalities, the coalitional approach stresses the importance of the "second image," that is, the effects of domestic structures and policies on states' foreign policy. However, the penchant in externality theory to use a state-centric model does not facilitate the specification of relevant domestic factors resulting in statements such as "regional systems comprise local externalities that radiate outward from a distinct geographic focus" (Lake 1997:50).

In some ways, then, Solingen's coalitional approach is superior to a state-centric analysis because it permits not only differentiation among states but also exploration of the effects of external factors on domestic structures and policies. The strength of statist-nationalist and liberal-internationalist coalitions obviously hinges on the regional context-whether conditions are generally cooperative or conflictual-and on the distributional effects of participation in the world market. In other words, liberal-internationalist domestic coalitions have greater difficulty in reaching their goals in a nonpermissive regional environment, but statist- nationalist coalitions have to readjust their goals in a liberal environment. The relationship between domestic coalitions and region formation is, thus, a two-way street.

Management of distributive effects appears to depend on whether the openness of the economy is repeatedly correlated with domestic economic growth on the one hand and wage inequality and interregional income differences on the other. In this respect, recent evidence does not provide for any simple conclusions. Globalization and regional integration have their economic blessings but they cannot be taken for granted. Liberalization of national economies probably accelerates economic growth, yet it can also lead to increased wage disparities and make unskilled labor more substitutable (Rodrik 1999; Wood 1999, 2002). In addition, the nature of the relationship between liberalization and the spatial distribution of economic activities remains a largely unsolved puzzle. Perhaps the one sure thing we can say is that the opening up of national economies results in greater specialization that may involve both decentralizing and centralizing processes (Rodriguez-Pose 1998; Fujita, Krugman, and Venables 1999; Venables 1999).

In sum, Solingen (1998) defines "region" in terms of the interaction between regional (and global) contexts and the grand strategies of domestic coalitions. Her



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emphasis on the global-regional nexus differs from that of other scholars writing on this issue (for example, Hettne 1999; Mittelman 2001) in that she rates the impact of domestic factors as pivotal. Moreover, she does not pay any systematic attention to the economic redistribution that may result from the choice of specific coalitions and grand strategies (though, to be fair, she addresses the problem in the case of Brazil). Perhaps the time has come to try to synthesize economic research on the intranational consequences of liberalization and political science literature on domestic coalitions and their regional strategies regarding cooperation and rivalry.

Identity Regions A dynamic approach to region formation is also stressed by those writing from a constructivist approach. These authors define regions with the help of such concepts as trust, common identities, and shared values as these are embedded in cross-border networks. Such imagined or cognitive regions-often produced by the spread of liberal values and interests-are delineated by nonphysical markers. The existence of a cognitive region does not necessarily require that its members occupy a common space for it can be formed through nonspatial interactions. A major type of cognitive region is the security community whose members expect change to occur peacefully and disputes to be resolved nonviolently (Murphy 1991; Adler 1997; Adler and Barnett 1998).

Identity regions exist in the consciousness of people. They must have historical and contemporary symbols that the people inhabiting the region recognize and share. And such regions must be institutionalized; that is, their territorial and political symbols should have continuity and their behavior should be repeated and standardized (see also Paasi 1986).

Eastern Central Europe has been suggested as an example of an imagined region that has been recreated by the spread of democratic values and practices. This process has resulted in a "new spatial imaginary" that differs significantly from the Cold War era as both the political position and the identities of the region have changed (Painter 1999). This observation, though, exaggerates both the strength of the common identity and political commitments to this region. For instance, historians are quick to adopt the concept of Mitteleuropa and work to justify its existence (Peter 1999). Political and economic differences between the central and eastern parts of the region are considerable and regional organizations such as the Central European Free Trade Area (CEFTA) have become an instrument to pursue EU membership rather than a medium for building common identity and cooperation (Rhodes 1999; Zukrowska 2000).

With regard to the economy, the optimum currency area is an example of a region that is constructed by political decisions. The operation of such an area is influenced by asymmetric economic shocks, movements of relative prices, factor mobility, and fiscal transfers. These factors give rise to externalities that create networks formed around spatial dependencies. The spatial element can also be seen in the specialization in production that results from such currency unions (Bayoumi and Eichengreen 1999; Mattli 1999; Kenen 2002).

The development of a currency area leads to both functional and territorial regions. Territoriality becomes a part of such an area for the simple reason that its members are states that have agreed to fix the relationship between their currencies or create a new, common currency. The establishment of a common currency, such as the euro, has been viewed in constructivist terms as an expression of the search for common identity and political vision (Marcussen 1999; Risse et al. 1999). Although the emphasis on identity and vision seems to leave little room for territory in understanding currency unions, the fact remains that even currencies with fixed exchange rates derive their position from connections with states. The European Monetary Union (EMU) is an interesting test case of how far a currency union can




move in the direction of nonterritoriality before it reaches the limits of interstate politics.

Benjamin Cohen (1997) has differentiated between state-based currency areas and currency regions that are primarily created by market forces-a distinction that is relevant here. Currency regions are functional and bounded only by the acceptability of each currency outside its political domain. In Cohen's (1997:60) definition, "currency regionalism occurs whenever money's authoritative domain extends significantly beyond the legal jurisdiction of its issuing government." The dollar is widely accepted as a medium of payment in Latin America as is the euro in Bosnia, Kosovo, and Serbia. These currencies have created an authoritative transnational domain that is defined by a mixture of market forces and intangible political factors such as hegemony, credibility, and stability.

No doubt, shared identities and their institutionalization are important elements in region formation. Adler and Barnett (1998) wisely point out, however, that trust and collective identity alone do not bring about security communities. The process leading to these communities has to begin with precipitating conditions such as economic changes and external threats and then work through power relations, organizations, and social learning. In fact, three tiers form security communities. Precipitating conditions, factors of trust and collective identity, and dependable expectations of peaceful change define these tiers. In other words, one has to be careful not to attribute the rise of security communities solely to cognitive and institutional factors but also consider material conditions and external threats

(Viyrynen 2000). Adler and Barnett's (1998) phase model is intended as a framework for

comparative research. Yet, one can identify at least two regions-North America and the Nordic countries-whose development paths have differed from this model. In North America, the demilitarization of the US-Canadian border set the stage for movement toward a pluralist security community rather than transactions, institutions, and learning (Shore 1998). In the Nordic countries, a common cultural and historical framework rather than specific precipitating conditions has pushed these states toward a security community (Adler and Barnett 2000; Wiberg 2000).

The limits to placing a strong emphasis on identity and trust in the formation of regions is in evidence in the case of ASEAN. Common cultural practices, values, and interests have been proposed as being at the root of the so-called ASEAN Way of resolving mutual conflicts (Vayrynen 2000). True, ASEAN does rely on mutual respect, noninterference in each other's internal affairs, a norm of consultation, and national resilience to thwart off internal threats to governments. However, these intraregional ties have not been able to eliminate mutual conflicts and different approaches to extraregional problems including economic shocks. ASEAN is, at best, a nascent security community (Khong 1997; Acharya 1998).

Two types of criticisms have been leveled against the constructivist interpretation of the ASEAN Way. The first asserts that although informal consultations, confidence-building measures, and noninterference in each other's internal affairs may have promoted regional stability, they failed to stop the competitive acquisition of weapons in the early 1990s--a practice that was halted only by the subsequent economic crises. Moreover, ASEAN's split over East Timor, disagreement on policy toward Burma, and its ineffective response to the environmental and economic crises in the region indicate only a limited capacity for collective action (Collins 1999; Henderson 1999). These observations are not inconsistent with the view that even though the diplomatic behavior of the ASEAN states follows certain rules, it is premature to consider ASEAN an identity-based community (Nischalke 2002).

The second criticism involves the argument that culture and learning had little to do with the regional integration process and proposes that the celebrated ASEAN Way has reflected a conscious effort to keep the disenfranchised out of an elite- driven political process. In fact, the Way has been viewed as a direct political



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"response to the end of U.S. hegemony and its subsequent... recourse to unilateralism" (Kelly 1999:174). Hari Singh (2000) has shown that the hegemonic explanation for region formation in Southeast Asia applies across most of that region's history; ASEAN's political role has been defined by patterns of hegemonic dominance and inter-hegemonic interactions. The end of the Cold War, the collapse of great-power bilateralism, and a partial US withdrawal from the region have led to a stress on economic cooperation for which there is little natural basis. As a result, there is a tendency to "sub-regionalize Southeast Asia into a mainland- maritime divide" (Singh 2000:143).

Security Complex, Constellation, or Community? The above analysis of regional security issues has indicated that the concept of regional order, though useful, is too general to provide us with much conceptual leverage. The same point applies, although to a more limited degree, to the concept of regional security complex. The latter concept gives us ideas and criteria for how a particular region can be carved out of its environment, but it is unclear what other theoretical advantages the concept provides. One way to free security studies from their territorial prison is to regard security relations as networks of commitments and actions associated with various negative and positive externalities and identities.

Buzan and his colleagues (1998) have tried to expand the applicability of the security complex idea to include nonmilitary areas and to marry the resulting construct to constructivist methodology. These scholars have concluded that expanding the scope of the concept is not easy and, if it is to be successful, requires ushering in a new concept--"security constellation"--to capture the spatial implications of nonmilitary security. Security constellations are "a much wider concept than security complexes, reflecting.. . the totality of possible security relationships at all levels" (Buzan, Waever, and de Wilde 1998). Although this approach resonates with the complexity of reality, conceptually it seems once again too broad.

As an alternative, one can argue that regional security complexes tend to evolve toward cooperative systems, that is, regional integration rather than conflict is the dominant trend (see also Buzan, Waever, and de Wilde 1998; Ayoob 1999). If such is the case, then further development of the notion of security community may help us out of our theoretical quandary. To expand on the idea of security communities would necessitate that we analyze the internal transformations and shifting boundaries of regional systems focusing on identities, networks, and externalities rather than static territorial characteristics. This type of analysis would, in turn, call for comparative studies of regions to understand the interaction between their specific internal and external dynamics. For such efforts, see the work of Peter Katzenstein (1996) and the author (Vtiyrynen 2001).

Toward a New Regionalism

Regional dynamism appears to have two interrelated dimensions, namely, the processes of intraregional change and the definition of the region's outer boundaries. The process of intraregional change is often called regionalization and depicted conceptually as a multidimensional (economic, security, cultural, and environmental) process that proceeds simultaneously on several levels (Hettne 1999). The process of regionalization fills the region with substance such as economic interdependence, institutional ties, political trust, and cultural belonging.

The concept of "regionness" has been used to describe the situation in which the process of regionalization has advanced far enough for the region to attain some intrinsic regional features. For Bjorn Hettne (1999), regionness is a variable that




implies the degrees of regionalization that have occurred in terms of, for example, spatiality, cooperation, and identity. Katzenstein (1996, 1997) appears to entertain a similar idea when he compares the regionness of Western Europe and East Asia. He finds in the former system regionalism that is more closed and centralized than in the latter which is more open and decentralized due to the existence of multiple power centers. The regionalization of the European Union relies more on formal multilateral institutions, but in East Asia regionalization is primarily founded on bilateral relations in politics and networking in business.

Joseph Grieco (1997, 1999) has set out to explain this difference in the institutionalization of regional cooperation in the two places. His basic argument is that the relative equality and stability of the distribution of capability in the European Union has alleviated fears about the regional dominance of Germany and, thus, has facilitated institutionalization. In East Asia, the stronger and increasingly dominant role of Japan has had the opposite effect. Grieco proposes that the failure to institutionalize cooperation in East Asia, despite the increase in regional "trade encapsulation," refutes institutional-functional theory. Despite the growing dominance ofJapan in intraregional trade relations in East Asia, no robust institutions of integration have emerged.

What Grieco describes, however, is not necessarily the case. More advanced measures of intraregional trade intensity show that from the 1960s to the mid- 1990s this indicator has declined both in East Asia and in ASEAN. In contrast to the United States and Germany, Japan's foreign trade has become more global at the expense of its regional trade in East Asia (O'Loughlin and Anselin 1996; Frankel 1998). Grieco (1999) seems to be closer to explaining what is actually happening in stressing Japan's greater economic and security dependence on the United States as compared to Germany's. This dependence provides Washington with a lever to influence Japan's policy if the latter tries to promote either trade or monetary groupings in which the United States is not envisaged as a member. To this statement one should hasten to add, though, that there are deep suspicions all over East Asia regarding any Japanese plans to strengthen its position in the region.

Another implication of regionness is that regions do not need fixed boundaries. Regional clusters of actors can be defined by their mutual externalities, common identities, or the interactions among domestic coalitions. Boundaries are in constant flux, especially in mixed-actor regions. But even state-based regions expand and contract. Thus, after attaining their independence, the Baltic countries quickly became members-in terms of institutions and identities-of a larger Nordic- Baltic region. They have also systematically, and successfully, aspired to join NATO, the transatlantic framework whose territorial boundaries have expanded and become blurred across the past ten years.

Regions also enlarge and contract in more subtle ways. Regional organizations disseminate their norms and institutions outside their territorial domains, creating varying zones of conformity with them. The influence is particularly strong if compliance with the norms is a precondition for being admitted as a member of the regional system. For this reason, the EU and NATO enlargement processes have created a political regime that reaches much beyond their formal domains. In general, the degrees of regionness or intraregional density vary considerably in the central and peripheral zones. Following Lake (1997:54-55), we can say that in Europe "thicker" regions are "nested" within "thinner" regions. The latter regions are more volatile and, therefore, provide a challenge to the stability of the core region.

The boundaries of different economic and political zones do not necessarily follow national borders; they may even cut across individual states. Consider Western Estonia and Western Ukraine, for instance; they are much more closely integrated with the core regions of Europe than are the eastern parts of these



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countries. These so-called European superregions are based on historical and functional divisions (see also Delamaide 1994). Among these superregions are the Latin Crescent, Atlantic Coast, Baltic League, Mitteleuropa, Alpine Arc, Danube Basin, Balkan Peninsula, and Slavic Federation. Needless to say, the boundaries of these regions are impressionistic rather than based on any solid empirical fact.

In a related manner, the growth triangles in Southeast Asia combine subnational regions from several countries. Transnational economic zones such as the Tumen River Area Development Programme have also been established in northeast Asia. This project has a much stronger strategic and state-centric dimension to it than the transnational zones in Southeast Asia which are molded primarily by market conditions and the need to find a place in the global marketplace. Economic cooperation in the subregion comprising southern China, Hongkong, and Taiwan also has major geopolitical implications because it is likely to increase the influence of the People's Republic of China not only in Hong Kong but in Taiwan, whose companies are becoming increasingly dependent on the Chinese labor force (Yue and Yuan 1993; Thant, Tang, and Kakazu 1994; Yue 1997; Sum 1999).

Politically organized and functionally networked variants of regionalism have a complex relationship with one another. Traditionally, regionalism has been understood as an organized form of interstate cooperation between neighboring states (see, for example, Riggins 1992). The establishment of regional organizations was seen to reflect the concerns and ambitions of national leaders (Taylor 1990; Mansfield and Milner 1999). Today, views differ on whether regional cooperation is driven by political leaders. On one side are comparative studies of regional organizations (see, for example, Rotte 1998; Hook and Kearns 1999; Cameron and Tomlin 2000) that suggest the interests of political elites remain primary in keeping cooperation going in such organizations. Elites promote and restrain cooperation on the basis of its estimated impact on their domestic power positions. On the other side are those (see Hettne, Inotai, and Sunkel 1999) who consider regionalization a response to the polarizing and peripheralizing pressures of economic globalization and pay only scant attention to the role of national political forces or leaders. New regionalism from this latter point of view means "the return of the political" although it does not signify the "return of the leaders" (Hettne 1999:7), at least not "political leaders" to use Mattli's (1999) terminology.

Mattli argues that the demand factors emanating from business leaders in a region are more decisive in promoting regional integration than the supply-side actions of national politicians. There is evidence in both the European Union and NAFTA that deepening regional integration has developed as a result of demands from transnational business leaders who have become worried about market shares and loss of competitiveness. In the world economy, there appears to be a general trend toward increasing intraindustry trade, product differentiation, and returns to scale. Thus, regional economic systems are organized by industries with increasing economies of scale and a hectic wave of mergers and acquisitions. As these industries do not often have strong mutual linkages, new regional forms arise that are internally specialized and divided. In this way, global capitalism erodes the formal regional cooperation in which governments continue to wield power, increasingly limiting the latter's political influence (Hveem 1999).

The recent wave of regionalization has often been considered a statist response to the regional projects ofJapan and the European Union. As argued by Mattli (1999), at least NAFTA, Mercosur, and ASEAN were set up to mobilize regional resources more effectively to deal with interregional competition and various kinds of externalities. However, Mattli (1999) himself shows that NAFTA was also a response to recurrent financial crises in Mexico that the United States could neglect with impunity. The primary US response was to push for the liberalization of the Mexican economy to bring it in line with the global trend toward a neoliberal market regime. NAFTA only became possible after the Salinas government decided




to relax investment rules, liberalize financial services, and make other concessions to US capital (see also Gonzalez and Haggard 1998).

The story of NAFTA also helps us specify the role of the business community in its relations with political leaders. United States business was divided into factions regarding NAFTA, interested in either protecting their own markets or opening up Mexican markets; indeed, they were so divided that they were only an effective lobby during the ratification process. Political leaders took the initiative on NAFTA; its advocacy remained largely in the hands of the White House given the reluctance of business to wrestle with NAFTA's opponents. Moreover, success in the negotiation and ratification process required things only the US government could deliver: prior commitments, the process of convergence, and side-agreements (Mayer 1998; Milner 1998; Cameron and Tomlin 2000). In Mexico, financial crises allowed the reform-minded political elite to start restructuring the economy in phases. Had all the reforms been packaged into one, resistance by entrenched economic interests would probably have blocked the changes. The phased liberalization of the economy created a new export-oriented economic elite willing to support NAFTA (Tornell and Equivel 1997).

In addition to global market actors, there are also other transboundary operations that are creating new types of informal regional networks. Such networks often involve illegal transactions in products and commodities traded across borders. These informal economic spaces are not apolitical; to the contrary, organized crime, drug dealers, terrorist groups, clan leaders, and warlords use these informal trading relations for their own political purposes (Griffiths 1996; Bach 1999; Reno 2000). "Shadow regionalism" differs from both state-directed and market-driven regional relations; it is based on a network of private contracts and nonmarket transactions.

Functional Regionalism Social Spaces

The social definition of region focuses on functional exchanges as the source of spatiality and can be traced back to Jean Gottman's (1952) distinction between "iconography" and "circulation," between "places" and "flows" to use today's terminology. Another major contributor to the definition of spatiality was Robert Sack (1981:5) who distinguished between territoriality used to control a spatial political organization and nonterritorial action; he considered territoriality as the "attempt to affect, influence, or [have] control over a specific area." Later on, Sack (1983) realized that territory is usually contested and started to stress the importance of access to it. The distribution of territorial power is rarely equitable because actors have different abilities to control and enter a particular territory. With this in mind, Sack (1983:56; see also Vayrynen 1993) redefined territoriality as a "strategy to establish differential access to people, things, and relationships."

The creation of resources by social interactions, exchange, and circulation underlines the importance of considering social units as more than merely containers of power. Criticizing the notion of "autonomous and well-bounded states," Charles Tilly (1998:404, 410) has explored communities that comprise both "multiple states and powerful non-state actors," defining these communities as "all categorically bounded networks in which a substantial proportion of relations fall into triads." In making this criticism, he relies on the idea that multiple actors, both state and nonstate ones, are linked to each other by partially overlapping triads rather than through bilateral or hierarchical relations and in a manner so that these bounded networks can be separated from the environment. Tilly's (1998:408) basic idea is that triads form "trans-state communities, which, if favorable," contribute to peace and the emergence of security communities.



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The discussion above hints at a tension between regionalism, regionalization, and the new regionalism. Traditionally, regionalism has been based on institutionalized intergovernmental coalitions that control access to a region. Regionalization has been viewed as the dynamic process associated with region formation. In the literature on the so-called new regionalism (or regionness), the concept has been given a more complex, normative meaning. As formulated by Hettne (1999:17), regionalization is conceived as a multidimensional and multilevel process that involves the "political ambition of establishing territorial control and regional coherence cum identity." In other words, according to new regionalism, regionalization is intended to control access to a particular region to protect it against the process of globalization.

Because regions and their boundaries change when states leave or join them and when power relations within and between them are significantly redefined, the new regionalism argues that regional change occurs when critical political and territorial saliencies are reframed by the participating states. In political regionalism, key issues concern the stability of the region, the security of its members, its contribution to the current global order, and the relationship of the member states to the global system (see also Hurrell and Fawcett 1995). In effect, regionalization is a dynamic and flexible process in which change is continual rather than happening by distinct leaps and bounds; the emergence of a shared identity is necessarily an evolutionary process.

Economic Regions Economic regionalization appears to depend on both political decisions at the regional level and the locational decisions made by firms. In effect, regions are viewed as an appropriate unit in which to organize governance and stimulate political participation. But often, as in the European Union, regional governance has remained weak. In fact, its regional dimension has been more manifest in the rise of economic pivot regions and of capital- and technology-intensive cities that support local development. There is evidence to suggest that, at least in Europe, differences in regional growth rates have depended on a combination of local conditions and their linkages to the world economy (Le Gales and Lequesne 1998; Rodriguez-Pose 1998; Braunerhjelm et al. 2000; Newman 2000). Neither the state nor regional government alone can assure regional success that is based on the interrelationship among local resources, transnational capital, and public-private interactions. Loose policy initiatives and regional networks cannot save a regional project if its market incentives are inadequate (Cowling and Sugden 1999; Koch and Fuchs 2000).

Regional specialization and growth are due both to expanding trade and investment as well as endogenous factors. Decreasing transaction costs play a role in the relocation of production within and between countries. The result is a center- periphery division that changes as development spurts integrate new regions into the center. Due to backward and forward linkages, production tends to agglomerate to areas where there is already similar production, irrespective of the intensity of trade relations (Fujita, Krugman, and Venables 1999; Venables 1999).

In Regions and the World Economy, Allen Scott (1998:25) traces the historical interaction of state formation and capitalism and notes that "the continual expansionary thrust of capitalism over the very long run makes it extremely mutable in geographic terms." It may, as a result, break out in quite different contexts. Thus, capitalism does not have any single locus, but, much like Foucauldian power, is everywhere. National economies are composed of regional production complexes that are connected to one another within and across national borders, facilitating the clustering of economic activities and adding to "the global




mosaic of regional economies" (Scott 1998:48). Scott has envisaged a four-tiered system of governance ranging from the global level through international regions and sovereign states to subnational regions across borders. The result depicts the new complexity in international relations in which actors operate in both territorial places and functional spaces. Thus, multinational corporations have created their own, autonomous transnational business spaces while also being connected with the governments of their host states. Territoriality and functionality have become independent but intertwined characteristics of the global and regional systems.

The new regional economies are usually based on nonstandardized technologies and economies of variety, necessitating the agglomeration of producers to attractive places. These agglomerations rely on advanced technologies and an educated labor force becoming the "regional motors of the new global economy" (Scott 1998:68). Industries that have standardized technologies and economies of scale may also develop international linkages but that happens through vertical integration within companies (that is, by increasing internal scope). Territorial proximity facilitates the creation of institutions and conventions ("untraded interdependencies") that confer new capacities to initiate transactions to economic agents (see also Storper 1997; Dunning 2000). Transactions have a dual dimensionality as they take place in both geographical (between firms) and functional (within firms) spaces. As a result, the hubs of economic and technological development are organized by horizontal interdependencies between the key actors and through hierarchical patterns of power within and between actors.

Conclusions

The primary purpose of this essay has been to argue that major political and economic changes have altered the relationships among various layers of the international system and that these changes have had different effects in the political-military and functional spheres. With the shrinking of the state, the national level has lost some of its influence, which in turn has fostered new links between the global and regional levels on the one hand and between them and the local level on the other hand. In other words, international relations are in the process of undergoing a vertical reorganization in which the emphasis is shifting both upward and downward from the national level. The reorganization is evident, for instance, in the role that business pressures from below play in the formation of regional economic associations. This change has had a particular impact in the functional sphere where the organizing power of the state is diminishing and that of the global market and local initiatives is growing.

At the same time, we are also seeing a horizontal reorganization taking place in international relations as various subnational and regional units develop networks that cross territorial boundaries. This process lies at the heart of the constructivist view of the world in which regional processes are assigned functions such as insuring the political coherence of the region and the resistance to globalization (new regionalism). The theory of externalities is not constructivist in nature, but it hints at the same dynamics; regionness is strengthened by the inside-out effects of political, economic, environmental, and cultural processes that move boundaries of regions through spillovers and emulation. These images of regions emphasize flexibility and dynamism, but the traditional state-centric security perspective has favored a fixed and static view of the region.

The marketization and fragmentation of the world system has inspired calls for new mechanisms of political control. In the early 1990s, it was popular to suggest that such management should be entrusted to a global or regional concert as both hegemonic and balance of power systems had undesirable qualities. This reliance on the concert metaphor did not turn out, however, to be a viable solution. Instead, the concepts of hegemony and empire have returned to mainstream international



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relations discourse to describe the emerging world order. These trends usher in a creative controversy between hierarchical hegemonic control and decentered constructivism and transactionalism. In both these tendencies, it seems the established notions of regionalism are devalued; they are either subsumed in hegemonic structures or converted into a process in which free agents aim to promote new political alternatives to both global capitalism and political discipline.

As a result of these vertical and horizontal transformations occurring in the world, a growing disjuncture is emerging between the static-place character of physical regions and the dynamic-flow character of functional regions. In the study of regions, this disjuncture is leading scholars away from studying regionalism and regional organizations to the analysis of regionalization and, thus, away from examining military and political issues toward those involving society, economy, and culture. This shift means that the regional agglomeration of technology and capital as well as the political reconstruction of reality are becoming at least as relevant as the multinational organization of military capabilities in regional alliances. Indeed, these new ways of conceiving of regionalism call for a renewal in the realist and liberal approaches.

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