Vehicle of Influence: Building a European Car Market

2. Understanding the Role of Governments, Firms, and Institutions

CHAPTER 2 Understanding the Role of Governments, Firms, and Institutions Building an Analytical Framework How did the member states of the European Union overcome a variety of political obstacles and execute the program of radical economic integration represented by the Single European Act and the White Paper proposals of 1985? A common interest in economic openness is often vitiated by the opposition of small but politically influential roups, yet in the case of the European auto industry , although the level of integration and liberalization accomplished varied across issue areas, the member states had some success in overcoming this classic dilemma.As a result,significant if incomplete,economic adjustment was accomplished by a crucial economic sector. In order to obtain a general understanding of these changes, this book focuses on policy outcomes in four important issue areas, in the period between 1985 and the beginning of 1993: environmental regulation, external trade, antitrust , and state aid. This was the period during which the so-called 1992 program —the complete integration of the internal European market—was to be realized. The analysis reveals the constellation of political forces, within the relevant institutional context, that was responsible for the level of integration and regulatory harmonization accomplished in each case. As a result, the analysis yields a clear picture of the changes that took place at a crucial time in Europe’s economic development and reveals the role played by the complex institutions of the EU. To conduct this analysis, a parsimonious and fl xible fr amework is r equired . The approach adopted here combines a political economy explanation 25 for preferences and political action with an institutionalist account of the political arena: preferences were a function of economic exposure, while the ability to shape policy was a function of collective action problems in a variety of strategic environments. Outcomes were then shaped in systematic ways by the rules and institutions of the EU. A simple overview of the framework is presented in figu e 1. The propositions that make up this approach form three groups. First, I argue that the main pur pose of international cooperation in E urope over economic integration was t o obtain pr eviously unrealized joint ec onomic gains. Therefore the preferences of governments and fi ms were a function of these anticipated gains. Consider the situation facing go vernments. A crude adding machine model ofthe costs and benefits does not do justie to the political constraints and oppor tunities they faced. Each sought to maximize the political gains to be had (in terms of votes) from a move to openness that increased economic activity.However,integration imposed costs on various narrow interests. Those states that harbored fi ms most likely to suffer from integration found such a move politically more costly than those states with fi ms less likely to face adjustment costs. In short, as discussed in the int roductory chapter, different governments had different political maxima corresponding to different levels of integration. This approach is in the t radition of what I ha ve called the Ra y/ Stigler/Peltzman framework in figu e 1. Below is a tentative map of the preferences of the member states of the EU based on this line of reasoning. The preferences of fi ms may be mapped in a more straightforward manner, based on 26 Vehicle of Influen e Fig. 1. Analytical framework their competitive position in regional and global markets, their cost structures, product lines, and technological orientation. This is in keeping with what I call the endogenous policy approach. Second, I examine the c ooperation problems faced by governments and fi ms as the y devised strategies to shape policy out comes. Forging coalitions yielded significant ewards to the go vernments of the member stat es as the y sought to control outcomes. Interf rm cooperation (across national boundaries ) increased the influen e of fi ms over policy. This cohesion among actors was fostered, or obstructed, by a variety of elements in the st rategic environment .Among such elements were the spatial distribution of preferences of governments and fi ms over specific ou comes, the character of the cooperation problem (for example, whether it was a variable or zero-sum situation),and the ability of states to give and receive side-payments. This discussion is fi mly in the tradition of what can be called the “cooperation” literature. In the third set of propositions, I examine...