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CHAPTER 2 Institutional Structures and Linkages: Managed Foreign Economic Policy President Mitterrand of France or Chancellor Kohl of Germany do not hesitate to jump on a plane to promote French or German industry at all corners of the world. Now we, too, plan to be more supportive and aggressive. Former U.S. Secretary of Commerce Ronald Brown, June 13, 1993 The strategy [of economic linkage] requires both the mobilization of private economic interests and their long-term subordination to political considerations. (Mastanduno 1992, 54) Periodically during the 1960s and the 1970s the U.S. government chose economic carrots as a means of inducing change in East-West relations. For example, in 1969 the U.S. Export Administration Act (EAA) declared U.S. policy to favor expansion of trade with the Soviet Union. In legislative terms it implicitly treated the ability to export as a right to be limited only under a few explicit circumstances. Indeed, all language implying that trade restrictions might be used to promote economic warfare was deleted (Seppain 1992, 217). In 1977 the EAA was amended to improve the licensing process by clarifying and making more consistent the policies and procedures of the act. In principle its provisions were intended to ease rather than restrict the ability of U.S. ‹rms to export to the communists. Yet none of this legislation seemed to have much effect on U.S. trade with eastern Europe. “In reality, the overall effect of the law has not been export promotion” (221). Why did the seemingly similar policies of West Germany and the United States have such different outcomes? What explains German “success ” and U.S. “failure”? In this chapter I analyze domestic institutional structures as a means of answering this puzzle. I suggest that the answer lies in the con‹guration of governmental policy-making institutions as well as in the relationship of these institutions with the private sector, 25 speci‹cally, the business community. What I see are two ideal types at opposite ends of the spectrum. One, the quintessential “trading state,” is Germany with its “managed foreign economic policy” apparatus and its institutionalized links to business. The other, the least successful trading state, is the United States with its balkanized foreign policy apparatus and its adversarial relations with business. In 1991 a high-ranking of‹cial in the German Ministry of Economics, elaborating on the role of the German government in East-West economic relations in 1989, justi‹ed German policies by referring to the NATO Harmel Report of 1967 (Jahnke 1991). This historic document, agreed to by all sixteen NATO members, de‹ned the contours of East-West relations by establishing the compatibility of East-West détente with military security. In other words, it gave the green light for building constructive East-West relationships especially in areas of economic cooperation. This so-called second pillar of the Report served for over twenty years as a basis for explaining German governmental support for commercial economic cooperation with Eastern Europe. In the words of the minister, “The political framework is important here as trade based on long-term projects needs calculable conditions. . . . economic policy considerations are not opposed to foreign policy considerations but are interlinked” (249). In other words, both state of‹cials and private business rede‹ned their conception of Germany’s national interest to be that of a Handelsstaat (trading state), a state that has primarily economic interests and pursues them in a noncoercive manner. What, then, characterizes a trading state? What is so different about the organizational and institutional structures of the Federal Republic? Two important organizational characteristics are central to explaining Germany’s success (and the failure of the United States): the degree of functional autonomy, coordination, and continuity within the bureaucratic process; and the degree of coordination between this bureaucracy and the para-public institutions of organized capital. It is particularly important to look at the context of government-business relations. How these relations are patterned is critical to understanding the success or failure of economic persuasion since they can shape and mediate how “national” interests are de‹ned and how foreign economic policy is designed and implemented. It is the presence of a large degree of both of these characteristics that helps predict a successful trading state. In other words, a successful trading state conducts “managed” foreign economic policy-making and has institutionalized relations with its private economic sector. How, then, do these two key attributes—managed policymaking and institutionalized state-business cooperation...

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