The Role of Institutions in Liberal International Relations

Picture the world after two devastating world wars. Nations had every reason to distrust each other, yet they kept choosing to build organizations like the United Nations, the World Trade Organization, and the International Monetary Fund. Why would self-interested states voluntarily tie their hands with international rules? This question sits at the heart of liberal-institutionalism, one of the most influential approaches in international relations theory. It argues that international institutions are not just window dressing but genuine tools that help states cooperate, reduce conflict, and manage the anarchy of world politics.

What liberal-institutionalism actually claims 🔗

Liberal-institutionalism (also called institutional liberalism or neoliberalism) holds that cooperation between states is feasible and sustainable, and that such cooperation can reduce conflict and competition. The theory does not deny that the international system is anarchic, meaning there is no world government standing above states to enforce agreements. Instead, it argues that institutions and regimes can soften the effects of this anarchy.

The core insight is that states can achieve absolute gains through collaboration rather than constantly fighting over relative advantage. When countries trade, coordinate on health, or manage shared resources, everyone can end up better off. According to this view, institutions establish norms, rules, and frameworks that guide state behaviour, facilitating collective action and reducing the likelihood of conflict. Institutions reduce uncertainty by setting out procedures that states can predict and follow.

This is where liberal-institutionalism breaks sharply from realism. Realists believe that power politics and the pursuit of national interest dominate everything, and that institutions are merely tools that powerful states use to advance their own agendas. Liberal-institutionalists accept that states are self-interested, but they reach a very different conclusion: cooperation facilitated by institutions can produce stability and peace even among rivals.

From the League of Nations to the United Nations 🔗

The intellectual roots of this approach run deep, but its first major real-world test came after the First World War. President Woodrow Wilson championed the creation of the League of Nations, envisioning a general association of nations that would provide mutual guarantees of political independence and territorial integrity. The League was built around collective security, the idea that an attack on one member should be treated as a threat to all.

Why the League failed 🔗

The League ultimately could not prevent the Second World War, and understanding why is essential to understanding the theory. The absence of the United States, whose own president had proposed it, severely weakened the organization from the start. More fundamentally, the League’s failure to provide a mechanism for the enforcement of collective security exposed its most fatal flaws. It had no armed forces of its own and depended entirely on members to act.

When aggression came, the League proved powerless. It failed to intervene after the occupation of Manchuria in 1931 and the invasion of Abyssinia by Italy in 1935, which marked the collapse of the collective security system. Yet the League was not a complete failure. It achieved real successes in technical fields, pioneering work on refugees, public health, and transit that quietly demonstrated the value of functional cooperation.

The United Nations as a second attempt 🔗

Created in the aftermath of the Second World War, the United Nations was designed to learn from the League’s mistakes. The drafters of the UN Charter balanced lofty commitments to peace with practical concessions to power, most notably the veto granted to the five permanent members of the Security Council. The lesson many drew was blunt: idealistic internationalism without power backing it tends to fail. The UN therefore wove great-power interests directly into its structure, hoping to keep the major states inside the system rather than outside it. [Image: A timeline comparing the League of Nations and the United Nations, showing their founding dates, structures, and key differences]

How institutions actually promote cooperation 🔗

The most rigorous modern defence of liberal-institutionalism came from the American scholar Robert Keohane. His 1984 book After Hegemony tackled a puzzle that troubled realists: why did international cooperation continue even after American dominance declined in the 1970s? Keohane argued that the answer lay in international regimes such as the IMF and the General Agreement on Tariffs and Trade.

Keohane defined an international regime as a set of implicit or explicit norms, institutions, and decision-making procedures that allow states to adjust their expectations and maintain channels of cooperation. Crucially, he accepted the realist starting point that states are rational and self-interested. He then showed that even purely self-interested governments have good reasons to build and maintain institutions.

Reducing transaction costs and the fear of cheating 🔗

Institutions help states cooperate in several concrete ways. First, they reduce transaction costs. Negotiating every single agreement from scratch is expensive and slow, so institutions provide ready-made frameworks that simplify bargaining. Second, they provide information. States that are uncertain about each other’s intentions can use institutions to share data and monitor compliance, which lowers the fear that a partner is secretly cheating.

This addresses the central problem that realists raise: in an anarchic system with no enforcer, what stops a state from breaking its promises? Liberal-institutionalists answer using the logic of the iterated prisoner’s dilemma. In a single encounter, defection looks rational. But international relations is not a one-shot game; states interact repeatedly over decades. As one summary of Keohane’s argument puts it, in a multiple-play prisoner’s dilemma, defection is unrewarding in the long run because short-term gains are outweighed by mutual punishment over time.

This is why reputation matters so much. A state that cheats on a trade agreement today damages its credibility for every future negotiation. Institutions strengthen this dynamic by making commitments more credible and by lending legitimacy to measures that retaliate against defection. In Keohane’s striking conclusion, international regimes empower more than they constrain.

Functionalism and the building blocks of peace 🔗

Alongside the regime theorists, another strand of liberal thinking focused on how integration actually happens in practice. This is functionalism, most closely associated with the scholar David Mitrany and his 1943 work A Working Peace System.

Mitrany’s argument was refreshingly practical. Rather than chasing grand constitutional schemes for world federation, he believed peace would grow from the ground up through technical cooperation. Proponents of functionalism argued that the pragmatic tackling of technical and economic problems, rather than comprehensive plans for federation, was the most fruitful way to achieve international integration. Mitrany famously wanted to overcome what he called the baffling division between the peoples of the world.

The logic is that when countries cooperate on specific, low-controversy tasks such as postal services, disease control, or aviation standards, they build habits of trust. Cooperation in one technical area then encourages cooperation in others. Mitrany placed great hope in independent experts who could solve shared problems while sidestepping the political quarrels that divide states.

Neo-functionalism and the European experiment 🔗

Functionalism was later refined into neo-functionalism by Ernst Haas in the 1950s. Haas built directly on Mitrany but added a political dimension, drawing on the practical work of Jean Monnet, a founding figure of European integration. Neo-functionalism has been described as a synthesis of Mitrany’s functionalism and Monnet’s pragmatic approach to management, attempting to explain how integration results from the choices of competing political actors.

The central concept here is spillover. Haas argued that integration in one sector creates pressure to integrate in connected sectors. For example, a common market eventually demands common rules on competition, then on currency, and so on. As states cooperate more deeply, they begin transferring loyalty and authority to supranational institutions that sit above the nation-state.

The European Union is the textbook example of neo-functionalism in action. Member states have ceded significant authority to bodies like the European Commission and the European Parliament, exactly as the theory predicts. However, neo-functionalism has faced serious criticism. It struggled to explain why integration sometimes stalls or reverses, and critics argue it failed to incorporate the significance of high politics, meaning the sensitive areas of security and sovereignty where states resist giving up control.

The realist challenge and the limits of the theory 🔗

Liberal-institutionalism does not go unanswered. Realists argue that the theory is overly optimistic and that institutions ultimately reflect the distribution of power rather than shaping it. The realist scholar Joseph Grieco mounted an influential critique, arguing that the theory underestimates the problem of relative gains. Even when cooperation produces benefits for everyone, a state may refuse to cooperate if a rival gains more, because in a competitive system today’s economic partner could become tomorrow’s military threat.

This points to a genuine weakness. Critics note that liberal-institutionalism focuses heavily on issue areas where states have mutual interests, such as the liberal economic system, rather than on military or security matters where cooperation is far harder. Events such as powerful democracies trying to escape the demands of the very institutions they helped build have given realists fresh ammunition.

Liberal-institutionalists respond by pointing to the sheer volume of sustained cooperation in the real world. Decades of trade governance through the WTO, environmental agreements like the Montreal Protocol on ozone-depleting substances, and a dense web of human rights treaties suggest that realist pessimism may be overstated. Institutions, they argue, take on a life of their own and can constrain even the most powerful states.

Why this matters for understanding global order today 🔗

The debate is far from academic. Almost every major challenge facing the world today, from climate change and pandemics to trade disputes and nuclear proliferation, involves the question of whether states can cooperate without a global government forcing them to. Liberal-institutionalism offers a hopeful but disciplined answer: cooperation is possible, but it requires carefully designed institutions that reduce uncertainty, provide information, and make cheating costly.

For a country deeply embedded in multilateral organizations, these ideas have practical weight. Participation in the United Nations, the WTO, the World Health Organization, and a growing list of regional and economic groupings reflects a bet that institutions deliver real benefits. Whether that bet pays off, and whether institutions can adapt to a world where power is shifting, remains one of the defining questions of international politics.

What do you think? Are international institutions genuine forces for peace, or are they ultimately tools that powerful states use to lock in their advantages? And if functional cooperation on technical issues really does build trust, why has it failed to prevent conflict in some of the world’s most interdependent regions?

References

1. https://en.wikipedia.org/wiki/Liberal_institutionalism
2. https://fiveable.me/key-terms/introduction-international-relations/liberal-institutionalism
3. https://www.nationalww2museum.org/war/articles/league-of-nations
4. https://www.ungeneva.org/en/about/league-of-nations/at-work
5. https://britannica.com/print/article/1976449
6. https://saass.fandom.com/wiki/Keohane,_After_Hegemony_(XXI)
7. http://www.olivialau.org/ir/archive/keo21.pdf
8. https://link.springer.com/chapter/10.1057/9780230292314_5
9. https://www.e-ir.info/2011/08/03/neofunctionalism-and-european-integration-is-it-still-a-case-of-spillover/
10. https://www.e-ir.info/2012/11/28/neo-functionalism-and-the-european-union/
11. https://www.e-ir.info/2011/09/01/liberal-institutionalism-an-alternative-ir-theory-or-just-maintaining-the-status-quo/