When Small States Make Big Leaps: Institutional Innovation and High-Tech Competition in Western Europe

Conclusion: Explaining Institutional Innovation

188 CONCLUSION Explaining Institutional Innovation Economicglobalizationandtechnologicalchangehasclearlyfailedtoinduceconvergence on a liberal economic model in which policymakers unilaterally implement sweeping pro-market reforms. How do we explain this variation? When do countries defend conservative corporatist institutions, and under what circumstances do they abandon them? And when do countries adapt neo-corporatist institutions to achieve competitive or creative objectives? The expanded universe of cases described in this book provides an ideal foundation for explaining variation in contemporary political economy and, in so doing, contributes to our understanding of how institutions change (and persist) over time. Stated most concisely, I identify a larger scope for institutional innovation, and institutional conversion in particular, by combining insights from the hitherto distinct literatures on concertation and coordination. The literature on concertation reveals that neo-corporatist adaptation is shaped by a unique distribution of power in which policymakers are strong enough to threaten societal actors,most notably trade unions,but too weak to implement reforms on their own (Baccaro and Lim 2007; Rhodes 1998). Economic crises and external constraints are instrumental in“hardening”policymakers and weakening societal actors (Sala 1997). Countries that do not experience crises, such as Austria or Norway, face few incentives to adapt conservative corporatist institutions. Similar dynamics prevail in Germany, where societal actors are insulated from deteriorating economic performance by a federal and constitutionally constrained government (Ebbinghaus and Hassel 1999). These safeguards enabled trade unions to block neo-corporatist reform or, more precisely, redirect CONCLUSION 189 it to the periphery of the political system through an incremental process of dualization (Palier and Thelen 2010). By contrast, particularly strong policymakers can dismantle neo-corporatist institutions altogether (Hassel 2007, 58), leading to unilateral liberalization as in the United Kingdom, Estonia, and Latvia. While the literature on concertation explains countries adapting neocorporatist institutions, it says relatively little about how they adapt them. Here, literature on coordination or collaboration in the act of production yields valuable insight into employer preferences and behavior. Countries with a weak or nonexistent tradition of coordination, such as Ireland, the Netherlands, Italy, and the post-Communist countries of eastern central Europe, will have a more difficult time convincing firms to share sensitive information about capital requirements , skill profiles, and product portfolios. Indeed, they may struggle to convince firms that state actors, trade unions, or other firms can contribute meaningfully to the construction of these resources. Cooperation is thus more likely to privilege policies that only indirectly affect production, including wage restraint, fiscal retrenchment, and pro-market reform. Countries with extensive coordination, such as Denmark, Finland, and Sweden ,are more likely to strike deals to invest in disruptive new inputs,as stakeholders can more easily convince firms to strike peak-level agreements and participate in lower-level implementation (see table 7.1). In addition to visually illustrating the interplay between concerted reform and coordination, the table situates Austria, Denmark, Estonia, Finland, Germany, Ireland, Latvia, the Netherlands, Italy, Norway, Sweden, and the United Kingdom within this framework. In the remainder of the conclusion I develop the argument, moving counterclockwise from conservative corporatism to creative corporatism. In explaining varying patterns of institutional change and neo-corporatist bargaining, I also address the prospects for neo-corporatist innovation in the future. Contrary to theories of liberal convergence, economic globalization and rapid technological change may make countries, even predominantly marketoriented economies, even more likely to strike competitive corporatist pacts. Creative corporatist arrangements are also likely to feature prominently as countries TABLE 7.1 Neo-Corporatist (and Non-Corporatist) Outcomes NO CONCERTED REFORM (UNEVEN VULNERABILITY) CONCERTED REFORM (MUTUAL VULNERABILITY) COORDINATION (COLLABORATION IN PRODUCTION) Conservative corporatism Creative corporatism NO COORDINATION (NO COLLABORATION IN PRODUCTION) Unilateral liberalization Competitive corporatism 190 WHEN SMALL STATES MAKE BIG LEAPS grapple with disruptive shocks, although this form of institutional conversion is most likely to occur in the countries that have done the least to reform their neocorporatist institutions and will evolve over time as countries confront disruptive new challenges. Conservative Corporatism: Coordination without Concerted Reform The decision to reform neo-corporatist bargaining, or any institutional arrangements ,beginswithpooreconomicperformance.Countrieswithstablegrowthand low unemployment face few incentives to adapt traditional institutions. Austria and Norway, for example, have enjoyed stable growth and successfully defended conservative corporatist bargaining over the last three decades. Austria occupies more stable medium-technology niches such as automotives and machine tools and has benefited from its proximity to relatively fast-growing post-Communist countries in eastern central Europe. It has been able to sustain employment protections...