Much has been written about economic policy, the international system, and national autonomy. In particular, a plethora of views has been expressed on how best to ensure consistency between aspirations of national sovereignty and the restraints imposed by an international environment. Two influential sets of views on how to attain such consistency involve the distinction between arrangements based on rules and those based on discretion. Regimes biased toward discretion stress the advantages of a global system characterized by independent (perhaps insulated) agents, thereby leaving a wide berth for autonomous national economic policy and, with it, for the individual pursuit of national welfare. Systems that stress the importance of rules emphasize the benefits of a global environment of interconnected parts, which by constraining national economic policy expands the common economic space and, with it, the pursuit of individual as well as collective welfare.
The futility of attempts to move too far in the direction of either rules or discretion is illustrated in the seesaw or pendulum pattern that has characterized international economic arrangements in the past. Unless observed with a measure of discretion, rules carry with them the seeds of their own destruction. Correspondingly, unless a measure of respect for rules prevails, discretion can only lead to disorder and eventual chaos. As the examination of a whole century of economic policy experience makes evident, the appropriate measure of discretion and the proper degree of observance of rules are neither historical constants nor solely dependent on economic factors. Indeed, a persuasive case can be made that one of the strongest influences over the seesaw pattern between rules and discretion is the degree of consistency between political and economic forces in the system.
The need to acknowledge how interdependence can both expand and constrain the scope of national policy is clearly illustrated by the international debt crisis. External debt accumulation allowed for actions and outcomes in debtor economies that would not have been possible without foreign borrowing. In that sense, access to those external funds served to enlarge the scope for national autonomy. But the use of foreign resources, for a variety of reasons, did not conform to the norm of efficiency and therefore the added scope proved to be only temporary. Undue use of that scope (on the part of both debtors and creditors) led to a crisis that although resolved from a systemic perspective remains unsolved in many countries, as made evident by persistent debt-servicing difficulties. Yet, the conflict between the freedoms and the constraints brought about by interdependence need not always arise. A necessary condition to enjoy the freedoms (in the debt context, these are the added possibilities of spending) is to recognize the constraints (the need to spend productively so as to be in a position to repay the debt) and act accordingly. The importance of clear rules applied with an appropriate measure of judgement is evident.
With regard to the challenges facing those countries currently in the process of adopting market-based regimes and integrating themselves into the world economy, many differences between East and West are more apparent than real. In addition, much can be gained in the process of reform by acknowledging the importance of keeping the pace of economic and political change commensurate, so that expectations in each domain remain realistic and mutually consistent. In this context, simple and transparent rules can be critical for their implementation and acceptance as well as for the abandonment of past behavioral patterns. A clean break with past attitudes will prove a necessary condition for reform measures to take effect and consequently for supply responses to materialize.
Nowhere have the challenges posed by rules been made clearer than in the economic integration effort of the European Community over the past three and a half decades. The members of the Community have adopted an increasingly binding set of rules and are now in the final stages of creating a single European market which, by its very existence, will serve as a powerful constraint on national economic policies. Accord on the need for rules and for limits on national autonomy is far more important for economic integration than the much vaunted dichotomy of a Europe “á une ou á plusieurs vitesses.” After all, national economies have been known to survive even when composed of regions at different levels of development, income, and wealth.
In conclusion, the dilemma between strict observance of rules and reasoned exercise of discretion is more apparent than real. Rigid adherence to rules in circumstances that call for the use of some discretion is inimical to the very existence of the rules themselves. The longevity of norms of behavior often depends on the ability to bend them when conditions warrant. On the other hand, excessive inclination to discretionary behavior, or the undue bending of rules, will tend to eliminate that margin of discretion, if only because it will lead to disorder. And discretion in a disorderly setting can hardly be considered freedom. In many respects, the interplay between rules and discretion replicates that between principle and pragmatism: a total lack of pragmatism surely leads to the abandonment of principles, and the absence of principles converts pragmatism into chaos. As Goethe once said about the importance of accepting limitations on freedom, “In limitations he first shows himself the master, and the law can only bring us freedom.”