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3. Extracting Domestic Resources: Reward Power
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CHAPTER 3 Extracting Domestic Resources: Reward Power As in the case of trade restrictions, the use of the trade carrot is more easily employed by state-trading than by capitalist states. It is institutionally dif‹cult for the latter to channel trade expansion in a politically desired direction. (Knorr 1975, 164) This chapter analyzes the capacity of the German government to extract resources from the German private sector as a means of amplifying its efforts at increasing economic exchange with Poland. It examines the instruments and levers that were at the disposal of German of‹cials in carrying out its strategy of economic persuasion. To this extent, a crucial component of implementing foreign economic policy involves the nexus of public and private actors in the Federal Republic. I suggest that speci‹c institutional features of the German political economy enabled state of‹cials to effectively conduct economic statecraft after 1969. These features are embedded in the organizational structures of policy implementation. The crucial quality is the institutionalized nature of state collaboration with the private sector. This policy interaction ensures that business gets what it needs to perform while enabling state of‹cials to calibrate national interests with key constituents. Such linkage involves formal institutions in some cases and in others merely institutionalized procedures , for example, regular dialogue with business associations. Thus, this chapter looks at how economic persuasion can be implemented by examining the nature of the available economic instruments. The challenge, then, is: How does a state translate its economic and monetary capacity into political leverage for the purposes of national interest? In other words, what nonmarket forces must be employed by the government to in›uence commercial outcomes? In the case of German-Polish relations, I ask: How were German decision makers able to extract the necessary resources from its domestic political economy? If, in the words of one social scientist, “for Bonn, eco46 nomics became the continuation of politics by other means” (Hanrieder 1989, 24), how was this possible? How was Bonn able to wield this strategy ? This involves examination of the bureaucratic policy process in addition to analysis of governmental interaction with what Katzenstein (1987) calls the “para-public institutions” of the private sector.1 Examining this aspect of economic statecraft (i.e., how economic instruments are implemented as a means of fostering cooperative economic exchange within the private sector) is important to understand the conditions that led to Bonn’s success at economic persuasion toward Eastern Europe and Washington ’s failure at it in the 1970s and 1980s. A signi‹cant weakness of many studies of economic statecraft is that they assume states possess the levers (or at least unlimited control over the levers) of economic persuasion. Those studies that are cognizant of this dilemma remain overly pessimistic when questioning whether public of‹cials can overcome the constraints inherent in a liberal democracy. As noted in chapter 1, Mastanduno (1992, 54) argues that economic linkage (in particular, rewarding good behavior and punishing bad behavior with economic instruments) is quite dif‹cult to implement since “the strategy requires both the mobilization of private economic interests and their long-term subordination to political considerations.” Likewise Knorr (1975) argues that securing domestic support for using economic leverage in foreign policy is a necessary condition for such a strategy to succeed. Thus, it is not at all obvious how a state in a liberal market economy can, of its own volition, extend signi‹cant foreign economic incentives in an attempt to in›uence another nation. Beyond the traditional means of conducting foreign economic policy —manipulating trade barriers and granting economic assistance—state of‹cials in capitalist societies have limited resources with which to initiate and sustain economic cooperation with a foreign partner. Instead it is the far more substantial resources of the private sector that can make a signi‹cant economic impact on the target nation. Yet government of‹cials cannot command performance from the private business sector. They cannot legislate that domestic ‹rms and banks conduct economic exchange with foreign markets. Failure to suf‹ciently understand these limitations on a state’s coercive power over its own domestic political economy, then, can convey false optimism when judging the feasibility of economic statecraft . This is not to say, however, that a state has no ability to control the volume of private economic exchange. What it can do is induce the private sector to perform in an effort to magnify its own offer of economic carrots. Thus, the skill with...