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Lessons from Capitalist Diversity and Open Governance Chapter 7 The evolution of the modern market economy in Europe was profoundly influenced by post-war innovations in the institution of multilateralism. The structural and institutional transformations that characterized Europe’s largest economies were not a product of domestic histories and designs alone. They were integrally linked to a history of international cooperation and an expanding set of multilateral institutions that promoted international trade, exchange rate cooperation, and a set of common rules that regulated markets and permissible forms of government intervention. In the process the institution of multilateralism not only reshaped politics between nations, it also redefined economic management within nations. A large comparative capitalism literature treats national economies as closed systems of governance. Significant parts of that literature recognize the importance that exposure to international markets has in shaping economic performance and distributional conflicts within states, but the institutions that mediate those effects are understood nearly always in exclusively national terms. It is often assumed that because multilateral designs have promoted greater levels of market integration, their effects are synonymous with those of the latter. That assumption obscures the independent effect that multilateral designs have and also that they are frequently devised as a means of regulating international markets in ways that make their effects more palatable with domestic objectives. Previous chapters placed the design problem at the center of analysis and studied the consequences of relaxing the assumption of national economies as closed systems of governance. They treated economies as open systems of governance in which the actions of governments and economic groups—the corporate sector, in particular—are shaped by the joint and evolving constraints of national and multilateral designs. The broader implication of the design problem is that the degree to which institutions at the national and multilateral levels are incentive compatible affects the long-term willingness of domestic groups to support the national economic reform agenda of governments. The case studies underscored that the institution of multilateralism helped protect some features of national models of capitalism, but also that it periodically Lessons from Capitalist Diversity and Open Governance 173 undermined key features of domestic reform programs. In three paradigmatic cases of advanced capitalism—Britain, France, and Germany—in four areas of economic governance across six decades, the case studies showed that no government was consistently successful in resolving the design problem in ways that delivered only benefits to those economic groups on whom they depended to successfully implement their reform agenda. Multilateral commitments invariably entailed different types of adjustment burdens for domestic groups, and governments sought to minimize both losses and maladaptation costs to those groups whose support was critical to sustain domestic reforms. Identifying when and why these effects of multilateralism varied across time, in distinct areas of economic systems, and in different national models is key to accounting for the evolution of European market economies. The Findings How governments mediated the domestic distributional consequences of multilateral institutions had significant implications for their ability to build societal coalitions that could sustain their domestic reform programs. The broader conclusion that emerged from the case studies was that when governments aligned national and multilateral institutions in ways that were incentive compatible and ensured that adaptation losses were small and maladaptation costs low for pivotal sectors of the business community, they were able to construct sufficiently broad coalitions within that community to successfully implement their economic reform agendas. However, the relative success of governments in producing these conditions varied significantly across countries, time periods, and areas of economic governance. In the early post-war period, governments in Britain failed to create such a broad coalition, while French governments were successful despite pursuing a more comprehensive program. By remaining outside the EEC during the 1960s, which hosted its fastest growing markets, British governments were unable to secure broad support within the business community because firms’ incentives to undertake the type of strategic shifts sought by the government were undermined. The business coalition also remained narrow because the financial industry, which was heavily invested in overseas markets owing to the imperial period, was unwilling to significantly redirect its attention toward domestic modernization given modest prospects for growth. By contrast, support for multilateralism by French governments helped them sustain a business coalition that enabled the consolidation of a new system of governance stressing economic centralization. The two cases stand in contrast to developments during the 1980s. A liberal reform agenda in Britain became sustainable after a domestic liberalization program was accompanied...

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