Small States in World Markets: Industrial Policy in Europe, and: Corporatism and Change: Austria, Switzerland, and the Politics of Industry (review)

262 SAIS REVIEW fails to match the needs of borrowers and lenders. While banks have come to understand the importance of matching the maturities of loans and deposits, borrowing countries have failed to finance long-term assets with long-term liabilities. The short-term loans made in the 1970s to fund long-term projects have caused distress for both sides. In their analysis of the debt problem, Lessard and Williamson recognize a variety of capital sources available to developing countries, including official transfers, export credits, commercial bank lending, and direct foreign investment . Their discussion of desirable characteristics of international capital flows is an important contribution to understanding the situation. They distinguish four elements in the current system: cash-flow matching, performance incentives , the impact on local financial markets, and contract enforceability. The book offers suggestions for improvements in each of these broad areas (though the discussion is couched in numbing jargon). Their proposals reflect the principles on which international finance should be restructured "if a more efficient international distribution of risk" is to be achieved. This notion of distributing risk more efficiently is the most striking aspect of Lessard and Williamson's work and is actually derived from the theory of comparative advantage in goods production. The authors suggest that similar comparative advantages exist in risk bearing, and that these could be exploited to distribute the risks of international lending efficiently. In contrast to FinancialIntermediation, Jack Guttentag and Richard Herring's The Current Crisis in International Lending is narrow and its proposals are impracticable. They view the debt problem as the result of unwise commercial bank policies. Accordingly, their suggestions for reform address only that aspect of the crisis, ignoring the developing countries, the industrialized countries, and the multilateral institutions that are all a part of any solution. Even their recommended banking reforms are subject to question; it seems unlikely that new financial instruments are the sole answer. Our response to the debt crisis will either undermine or bolster the stability of the international financial system of tomorrow. Systemic solutions may not be realistic, yet there is also the danger that our response will be too limited. The debt crisis is more than a domestic problem. If we fail to confront it in its broad, international context, we will lose the opportunity to build a stronger world economy. Small States in World Markets: Industrial Policy in Europe. By Peter J. Katzenstein. Ithaca, N.Y.: Cornell University Press, 1985. pp. 288. Corporatism and Change: Austria, Switzerland, and the Politics of Industry. By Peter J. Katzenstein. Ithaca, N.Y.: Cornell University Press, 1984. pp. 332. Reviewed by Andrew M. Moravcsik, SAIS M.A. 1984,former editor ofthe SAIS Review, currently a Ph.D. candidate at Harvard. Many of the small industrialized nations of northern Europe (Austria, Belgium, Denmark, the Netherlands, Norway, Sweden, and Switzerland) share a distinctive style of politics. In modern times all have enjoyed extraordinary political stability and economic prosperity. High levels of political participation, relatively large numbers of political parties, and close links between parties and interest groups are found in each country. Moreover, many have developed a "corporatist" system of BOOK REVIEWS 263 industrial relations, wherein cooperation between business, trade unions, and the state allows agreements to be reached on economic and social issues such as wages, working conditions, social benefits, and economic policy. Peter Katzenstein, professor of political science at Cornell, has written two companion volumes, Small States and World Markets and Corporatism and Change, in which he offers a functional explanation of these similarities. The books synthesize two decades of valuable research, much of it by Katzenstein himself, on the interrelationship between size, interdependence, economic growth, and the organization of economic interest in these nations. Although Katzenstein's rich historical case studies ultimately fail to demonstrate an unambiguous causal relationship between corporatism and economic efficiency—a failure due in part to flaws in the design of his study—they offer a more profound understanding of the role of politics in promoting international competitiveness. Katzenstein is at his best when tracing the historical roots of corporatism, which first emerged in each of these countries in response to the Great Depression. More than two centuries ago, these small...