Epstein: The Social Context in Conditionality

Epstein, Rachel. (2008). "The Social Context in Conditionality: Internationalizing Finance in Postcommunist Europe". Journal of European Public Policy.

Eastern European countries have been more effective than their Western European counter-parts in building the framework for the united European financial markets system. This paper asks why this is the case. It builds a framework of international institutional influence that requires a certain societal milieu in order to be effective.

“…I argue that CEE (Central and Eastern European) susceptibility to international institutions’ pressure, including conditionality, hinged on a particular social context. Where domestic actors viewed international institutions as authoritative sources of information and potential imprimaturs of their political platforms, post communist countries were likely to heed their advice and fulfill the terms of their conditionality…By contrast, where international institutions were unable to displace domestic sources of authority, namely nationalist striving and the desire for autonomy, international institutions’ recommendations and conditionality wielded much less power, resulting in lower levels of foreign ownership in CEE banks” (2).

The dependent variable being explained is why there is such high levels of foreign ownership of banks and other moves that are in line with the financial standardization promoted by the EU. The independent variables are the forces applied by the international institutions that are mediated by the specific social milieu that the author puts forth. This social context is claimed to be a “new mechanism” of understanding the influence of international organizations and institutions.

The social context in that the IV is mediated are described. Three features are highlighted: “the discontinuity of sectors and regimes, domestic actors’ perceived subordinated status vis-à-vis international institutions and the normative consistency underpinning the policies in question” (6). These three variables are all operationalized (6), and, where they are congruently high, it is expected that a country’s openness to advice from international institutions will also be great.

Four rival approaches for explaining the variation in the adoption of influence from international institutions are then explored. The first is domestic preferences (8). The second is economic constraints or opportunities (9). The third is external demand for foreign owned banks (10). The fourth is conditionality (10-1). The main drivers are then examined for various transitioning CEE countries with an eye to social context.